By Marcus Leach
One in ten small and medium-sized businesses (SMEs) are actively considering acquiring a competing business, according to a new study by independent Invoice and Asset Based Lender, Venture Finance.
The transaction increase looks set to start in 2012 as appetite returns, with a quarter of those planning acquisitions in the next six months.
But deals may be stymied as business owners admit to a lack of experience in the acquisition process.
“For those businesses that have weathered the last few years well, the time may well be ripe to reap the rewards now with competitive acquisitions," Steve Websdale, MD South at Venture, commented.
“But many of these ‘first time buyers’ will need a helping hand to make sure they take the best financial and structural approach to strategic acquisition.”
The study is based on research amongst 500 SME business owners and directors.
The appetite for acquisition looks set to increase quickly as SMEs explore their options. Over a quarter (29%) of those hoping to acquire a business plan to do so in a year or less. the research finds.
Over a quarter (27%) of businesses also said they had the resources to acquire a competitor’s business now. These businesses estimate they are sitting on an average of £190k each of investable funds.
“Business owners are looking at opportunities as they arise, but they don’t always recognise the varied assets they have at their disposal and how they can be used to structure an acquisition," Steve Websdale added.
“As well as their cash reserves, businesses will need to explore and capitalise upon assets they already own to finance their acquisitions. By using existing assets they can steal a march on their competitors.”
However there is a distinct lack of past experience amongst SMEs, with potential to create deal-making difficulties, the research uncovers.
Over three quarters (78%) of SMEs have never acquired a company before. As a result, many lack the knowledge of the financial or operational side of carrying out an acquisition or business sale.
A third of SMEs said they have no idea of how to engage in an acquisition or merger. More than a third (35%) said they would not know how to position for an acquisition.
A similar proportion (36%) say they would not know how to structure the financial side of an acquisition.
Nearly two thirds (61%) confirmed they would need external advice when looking to acquire a business.
“Despite the potential, many SMEs appear to lack the experience required to undertake a smooth acquisition or sale. This could lead to poorly structured deals and financial headaches for first time buyers," said Websdale.
“It’s important for those considering acquisitions to take the right advice. It is important to understand how assets can be best used. Businesses will need to create the financial headroom required to make these deals work and to prevent a loss of liquidity in the crucial post-acquisition phase.”
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