Size Matters in the M&A Process

As with most aspects of acquisition methodology legend, the myth of size is in fact, nowhere near as accurate, and certainly not as useful, as many would have you believe.  The reason for this is that most of the theories around mergers & acquisitions emanate from the analysis of very large, public acquisitions, whilst there has been very little effort expended in trying to understand the acquisition dynamics of SME’s. 

Of course, size has always been a relative issue but, in the Software Tech sector, on which we focus, there are far more SME acquisitions and opportunities than large scale acquisitions – and yet, the bulk of analysis has focussed purely on the few, large acquisitions.  Consequently, most of the theories that executives read on the subject are, at best, skewed and at worst, plainly misleading and useless - and, in fact, totally irrelevant to them.

Some common myths that need to be challenged:

1) Large acquisitions prove more profitable for the buyer:

Research has clearly shown the reverse.  Carline et al. (2002).

2) Large companies have the resources to prevent acquisition mistakes:

Research has shown that smaller firms are more likely to pull out of value-destroying mergers, whilst having greater resources doesn’t preclude acquisition faux pas. Moeller et al. (2004)

3) Acquisitions are a more popular growth strategy for large firms than SME’s:

Research has shown that M&A is a very popular and increasingly undertaken, growth strategy for SME’s – much more so than for very large companies. Tjalling C. Koopmans (2009)

If you have a related story to tell, regarding your experiences of acquiring or selling a business - of any size - in the Software Tech sector, please feel free to share it with us.  irossedwards@bossequity.com

15 June 2017