Acquiring existing companies in Italy: let’s deepen why it is advantageous, instead of growing internally.
The Italian market is characterized by the presence of a large number of small and medium-sized companies.
It is also known that, until a few years ago, this companies small size was a real competitive advantage, especially if combined with their capacity to adapt to changing market.
However, these prerogatives are no longer a specific guarantee to keep the acquired position or to foster this companies growth.
Moreover, many economic observers and entrepreneurs have already identified in the M&A transactions a strategic anchor in order to be able to continue to compete and acquire new market positions.
Unfortunately, there are few companies that can have sufficient financial and managerial resources to adopt such a rewarding (but also so challenging) scheme.
As mentioned, growth is the main theme of all the best companies: acquisitions can be an excellent way to accelerate it.
Acquiring existing company could be reasonable:
- to obtain the necessary skills and resources to implement a specific growth strategy;
- to speed the process of achieving the desired growth target;
- to offer the possibility of identifying undervalued companies on the market that can be the right choice for an investment, often much lower, than it would be necessary to invest for “build” its own growth.
According to KPMG Report, in the first half of 2017 Italian M&A market recorded 390 transactions worth 16.6 billions €.
A largely positive signal is represented by the 30% increase in terms of number of transactions compared to the same period last year: in the first half of 2017, 390 operations were closed against the 298 of the same period last year.
Once again, foreign investors interest towards Italian assets is concrete: in the first six months, there were 132 incoming transactions for a value of about 9.7 billion euro, up by 3 billions euro compared to the same period in 2016.
…and the most common mistakes
On the other hand it is true that acquisitions can turn into a risky process: history is full of examples in this sense.
Sometimes acquisitions are driven by the desire to grow in dimensional terms without paying due attention to real synergies or because are focused only on risk diversification.
Another common mistake is targeting to the most profitable companies: this is not always convenient, even when it comes to the best companies on the market, because they usually have a very high acquisition price.
Furthermore, it will be more difficult for the buyer to add value (i.e. increasing profitability and cash flow).
How to limit the risks?
It is essential to appoint both a financial advisor (i.e. usually a company able to assess the target and provide the strategic support necessary to understand the best commercial and industrial synergies) and a lawyer specialized in company transfer transactions.
Business Lawyer, indeed, is essential in a family-run SME’s transfer transaction, because:
- its role is not only to mediate between the parties for the conclusion of a contract, but also to be able to interpret the business and the entrepreneur / investors economic needs;
- BL has to interact frequently with financial or tax advisors;
- assumes the “legal translation” of purely financial needs, solutions and structures;
- as well as supporting the entrepreneur / investor on all legal aspects, guarantees additional credibility and, if necessary, can also be the one who seeks and identifies other PE investors.
Finally, Business Lawyer is seen as a guarantee by both business partners and any third party, because it qualifies the reliability and the seriousness of all the parties involved in the transaction.
If you know how to move in the Italian SME’s market, company shares or assets acquisitions could be an opportunity.
Actually, first step is to choose wisely your consultants.