Pullach, July 4, 2023 – The German Mergers & Acquisitions Association (BM&A) has published the results of the second survey of SMEs, which it conducted with its publication organ M&A REVIEW as part of the “Mittelstandsinitiative M&A” together with the University of Bristol Business School. It paints a comprehensive picture of how SMEs use mergers & acquisitions (M&A) to explore future potential and the challenges they face in doing so.
The German SME sector comprises more than 30,000 companies with a turnover of between 10 and 250 million euros. 12,000 of these companies are owner-managed. A large proportion of them are involved in company acquisitions and sales, and thus in growth strategies and the optimization of their own business model. Major differences between SMEs and large companies can be found in structural, social and functional characteristics. It is therefore reasonable to assume that SMEs conduct M&A differently.
The aim of the BM&A SME study is to better understand the acquisition behavior of SMEs. To do this, it is first necessary to shed light on the wider environment of SMEs. “Despite their enormous economic and social importance, the acquisition behavior of small and medium-sized enterprises (SMEs) represents a “black box” in the otherwise very extensive M&A research,” says Jan Pörschmann, spokesperson for the SME initiative and Chairman of the Board of the German Association of Mergers & Acquisitions (Bundesverband Mergers & Acquisitions gem. e.V.).
A key finding of the study is that, as expected, organic growth plays an important role for SMEs. Nevertheless, SMEs also use acquisitions to grow and adapt to changing conditions. In fact, over 80 percent of the SMEs surveyed have already made an acquisition and almost as many are planning to grow through acquisitions in the next five years. However, it is interesting to note that the strategic directions have changed compared to the previous year. Presumably, it is the experience with supply chain problems that has made motives such as forward or backward integration more relevant. In summary, it is clear that SMEs do use M&A as a strategic element of corporate development.
“Although many SMEs describe their competitive environment as rather moderately aggressive, it is clear that they are confronted with brisk acquisition activity in their sectors. In addition, the complexity of the technical and regulatory environment is particularly burdensome for SMEs and is exacerbated by rising energy prices and inflation,” explains Prof. Dr. Florian Bauer, Chair in Strategic Management at the University of Bristol Business School.
Even though M&A projects present SMEs with major challenges, the data shows that they are no different from large companies in terms of success rates. Numerous studies independently report failure rates of between 40 and 60 percent. The M&A-active companies in our study have a success or failure rate of around 50%. It is interesting to note that acquisitions primarily have a positive impact on companies’ sales growth, but a negative impact on efficiency ratios. This is particularly true as cost synergies are often a key driver for acquisitions. One reason for this effect is probably to be found in the special characteristics of SMEs. The majority of the SMEs surveyed are family businesses that tend to approach the topic of “reducing redundancies” or efficiency programs with caution or restraint.
“We believe that this study provides a good picture of the mood in the SME sector and M&A. We therefore hope that the results of the study will be widely disseminated. We look forward to continuing the study next year and to further new and exciting findings,” Prof. Dr. Florian Bauer is convinced.
“We would like to thank the team led by Prof. Dr. Florian Bauer for conducting the second edition of this study – and all participants who took the time to answer our questions and thus provide us with a representative statement on the M&A climate in the German SME sector,” says Jan Pörschmann.
Download the entire study free of charge: https://ma-review.de/mittelstandsstudie-ma/
