How M&A Finance can support your growth strategy

While the majority of advisors expect stabilisation or improvement in the market in HY1-2023, and there is a renewed feeling of optimism as we enter Q2, the current post-pandemic economic climate in the UK has devastated certain sectors and growth across the board continues to be sluggish.

So where does that leave UK SME’s looking to grow?

After all, SMEs are the backbone of the UK economy. They account for over 99% of all enterprises and employ more than half of the labour force in the private sector. Key drivers of innovation and growth, they are absolutely essential to the economic recovery of the UK.

Many SMEs continue to be on a growth trajectory. But financing that growth has proved tricky in recent years for UK small businesses.

SME lending from traditional banks has fallen this last decade as banks pull back, and refocus resources elsewhere. This has resulted in debt capital accessibility becoming notoriously difficult for SME business owners to obtain.

Fortunately recent years lenders, such as SME Capital (a business created by entrepreneurs realising that there was a real need of greater access to debt capital for small businesses), have stepped up and are now plugging the gap in small and medium enterprise growth finance lending.

With greater financial mechanisms now widely available for SMEs, business owners can now take advantage of this capital availability and use it to grow their operations rapidly.

But what’s the best way to do this?

Many entrepreneurs look to move their businesses forward organically, growing through hard graft that builds a successful and reputable business over many years.

But there is another route to growth: M&A Finance.

M&A is an important weapon in the armoury of growth for SMEs. Done right, it can be a way to scale up quickly.

In an opinion piece with Business Monday last year, entrepreneur, investor and supporter of UK SME businesses, David Newns, said that through the right M&A strategy, a business can achieve years’ worth of growth in months:

“M&A is simply a quick route to building and extending capability, geographic coverage, and achieving greater scale. It (an acquisition) considerably reduces time to grow to the point when you might be ready to go public or sell – or attractive enough to buy.”

So, whether it is to acquire complementary products, new markets and distribution channels or new technology and talent - M&A is a tool for SME growth just as it is for larger companies.

Advantages of a M&A Strategy

Faster growth strategy

Your existing business plan for growth can be accelerated if you acquire a target business in the same sector or location that allows you to combine resources to remove duplicated processes and increase revenues through increased distribution channels and reaching a larger customer base.

Also accessing funds or valuable assets for new developments and production are often less expensive to buy than to build.

Reducing your costs and overheads through shared marketing budgets, increased purchasing power and lower costs will also have a positive impact on your growth.

Competition

Reducing competition: Buying up new intellectual property, products or services may be cheaper than developing these yourself.

By making your business larger, you can also become more competitive. You will have access to a wider customer base and be able to increase your market share.

Your target business may have distribution channels and systems you can use for your own offers.

Access to talent

Obtaining key quality employees and those with additional/complimentary skills, and knowledge of your industry/sector and other business intelligence is a major plus point from acquiring a business.

For instance, a business with good management and process systems will be useful to a buyer who wants to improve their own.

Diversification of risk

Diversification of the products, services and long-term prospects of your business is a solid long-term strategy. A target business may be able to offer you products or services which you can sell through your own distribution channels.

By diversifying into different sectors and product/services, you are also hedging against future disruption in specific industries.

Don't forget - the deal isn't done until it's signed

It is important to highlight that M&A Finance, and execution, does not come without risk and that is why planning is vital at every stage during the process.

You must be clear on the reasons you are pursuing a M&A strategy for your business and what you want to buy, prior to identifying a suitable target.

You must have in place a process to get a preliminary valuation, letter of intent and NDA together with a robust due diligence process that covers the financials, plus legal, HR, tax, operations, Tech, IP, commercial factors etc.

So, make sure you get the right team in place to represent you, and of course, the right funding partner (like us!) who can assist you with organising yourself.

At SME Capital, we have years of experience supporting businesses with M&A Finance.

SME Capital Debt Capital for M&A Financing

At SME Capital we do not ask for personal guarantees or collateral.

We provide specialised, long-term financial alternatives rather than a general loan that applies to all businesses in the UK.

We are here because we firmly believe that our specifically designed finance solutions for UK companies, which will aid in your growth and success, represent a better option. We are experts in SME lending, therefore every customised loan we make for you will be designed especially with the goal of becoming your long-term finance partner.

If we don't think it is the right direction for your business, we'll tell you.

SME Capital uses a cash flow-based approach to lending, offering a multiple of business profitability, specifically EBITDA, as opposed to a loan amount being directly tied to the value of specific assets. We can provide an economic solution to consolidate smaller lenders, or refinance expensive short-term loans, while providing additional working capital for the business.

With repayment terms from 3 to 7 years and flexibility on repayment structures SME Capital is an effective, relationship-led, refinance solution for qualifying businesses in any sector that have been trading more than 3 years with £250,000+ EBITDA.

About SME Capital

SME Capital was founded to support the growing number of SMEs who face difficulty or frustration in accessing capital through traditional methods. We understand the importance of real and trusted relationships in the SME lending market and have dedicated Regional Directors based across the UK. By combining traditional lending expertise with the latest in data analytics, we are supporting established UK SMEs with their long-term objectives and business ambitions.