Five Reasons Small Businesses Should Consider Mergers and Acquisitions

July 10, 2023 Stan

Opinions expressed by Entrepreneur contributors are their own.

Mergers and acquisitions (M&A) have become increasingly popular among large corporations as a business strategy. However, small and medium-sized businesses may hesitate to engage in M&A due to the perceived complexities and risks involved. This shouldn’t necessarily be the case.

M&A refers to the process of combining two or more companies to form a new entity, or to have one company take over another. M&A indeed carries inherent risks and the process can be intricate, but in many cases, the benefits far outweigh these hurdles. M&A can be a strategic move for large and small companies looking to expand their business operations, gain a competitive advantage or enter new markets.

Throughout my career, I have completed more than 20 successful deals — M&A is a strategy I have employed time and time again. These purchases have accelerated our growth, allowed us to expand into new industries and markets, and they afforded us new expertise, and technologies and increased the services we can offer our customers.

Here are five reasons I think small and medium-sized businesses should consider M&A as a growth strategy.

1. New markets and customers

M&A can provide access to new markets and new customers. Customer acquisition can be costly, both in time and resources, but acquiring a company often comes with established customers that are already familiar with the products and services offered. This can be especially useful for expanding geographically or into new industries.

For example, a software company that specializes in sales management tools may acquire a project management software company to gain access to a new market. It is a huge benefit if the acquired company has an established customer base in a different geographical region or industry, which can help the acquiring company expand its reach and diversify its offerings.

Additionally, acquiring a company in a different market can provide a brick-and-mortar presence and a foothold there.

2. Cost savings

There are significant cost savings and economies of scale that can be achieved through M&A. By merging with another company and combining resources and operations, they can eliminate redundancies, streamline processes and benefit from synergies — such as shared overhead costs, reduced administrative expenses, and improved purchasing power.

This can increase profitability which is vital for smaller companies with limited resources. Additionally, by leveraging the strengths and resources of both organizations, the company can create a more efficient and effective business model.

3. Diversity of products and services

By acquiring a business that offers complementary products or services, a company can expand its offerings and potentially tap into new revenue streams.

For example, a company that sells office supplies may acquire a printing services company. By offering a more comprehensive solution, the company can differentiate itself from its competitors and can also provide opportunities for cross-selling and up-selling.

In that same example, the office supplies company can then promote its printing services to its existing customer base and vice versa, helping to increase sales and customer retention.

4. Talent acquisition

An acquisition can create an opportunity to level up or add talent across the organization with highly skilled employees.

With the staff of both organizations combined into one, the merged organization can benefit from a more diverse and skilled workforce. Additionally, the company can acquire new expertise.

For instance, a marketing agency may acquire a search engine optimization company to boost its digital marketing capabilities. Access to new technologies or expertise can help drive innovation and growth.

5. Exit strategy

Finally, M&A can provide an avenue for an exit or a liquidity event for business owners or investors. Business founders or owners who want to retire or venture into other business opportunities can sell their companies and exit the market.

Selling to a larger organization can provide not only a profitable exit for them but can also help ensure that their company and employees will continue and grow. Additionally, M&A can provide liquidity events for investors and shareholders, unlocking value and providing a return on investment.

Small and medium-sized businesses can significantly benefit from mergers and acquisitions as a powerful growth strategy, just as large businesses can. And while all M&A activity does carry risks that need to be carefully considered, there are significant benefits.

It can be complex, but the right partner can help you navigate the process. By adopting the right approach and strategy, M&A can be a game-changing opportunity for any size company to take their business to the next level.