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Many business owners come to mergers and acquisitions at a point in their business lifecycle when they’re at the end of the journey – retirement, a sale or an exit event – but business owners are increasingly looking to M&A as a tool for growth.

For ambitious businesses, M&A is becoming a practical way to scale, de-risk and accelerate growth, without relinquishing control or stepping away from the business. Used well, M&A isn’t an alternative to growth, it’s a means to achieving scale faster, and more sustainably.

How M&A supports growth

M&A has typically been inaccessible for SME business owners, but wrappers and groups of businesses in similar markets can create a scale that improves EBITDA and therefore valuations. Rothbridge Investments specialises in enabling SMEs to access the M&A opportunity, through exactly this mechanism.

But rather than selling and getting out, many owners also use the process to move forward, and be part of a larger business. In effect, business owners are exchanging full ownership of a smaller business to take a meaningful stake in a larger one. With some owners using the merger as an exit event, others that have the desire to continue can take leadership roles across a wider business, and collaborate across the wrapper to access larger opportunities.

Acquiring other businesses to accelerate momentum

Another route to growth is to be the acquirer. Acquisitions can be used to shortcut growth, with quality moves removing the constraints and allowing business owners to buy what could take them years to build. Some acquisitions are about market share, others are about data, technology or systems, and others are a route to diversification.

Rothbridge Investments facilitated a double acquisition for IT business, Infinitech which enabled the business to provide an all-in-one solution to businesses, supplying hardware, managed services, web support and consultancy, such as audits and systems advice. Founder Scott Paterson wanted to accelerate his business growth, with a longer term eye on the potential for an M&A exit.

The next phase of your business

A useful question for business owners to ponder: could your business be part of something bigger?

M&A doesn’t have to mean a sale and an exit, it can be used to propel your business into the next phase of growth.

Prepared businesses are going to get the most out of M&A, and that’s why we often work with clients for up to two years in advance of an exit or event. Businesses need to be ready to go through the process, and as a business owner you need clarity on your vision, and where you want to take your business.

If you think you could build something bigger, give us a call.

If you’re a profitable, well-run SME, your business should command a good price, right? What feels like a low valuation for your business can be a bitter pill to swallow for SME owners. But unfortunately the market doesn’t always see it the way you do, even if you are a stable, respected and cash-generating business.

Rarely is this issue the quality of the business. More often, it’s a matter of becoming commercially attractive to the investors with the money to spend.

The value challenge for SMEs

Investors with money to spend want bang for their buck. The challenge for SMEs, is that they might be well run businesses with good profits, but without the scale of larger enterprises, they struggle to command the premium valuations that they desire. Their turnover and EBITDA are below the threshold.

Structure and governance can also be barriers for SMEs at the point of sale. SMEs can be over reliant on founders and owners, with key relationships and knowledge concentrated in one or two people. With those people looking for an exit, what does that mean for the business?

How wrappers and roll-ups change the picture

This is where M&A can move from being an exit tool to a value-creation strategy.

Wrappers and roll-ups involve combining several complementary businesses into a larger group structure. Rather than selling outright, founders often roll forward some or all of their value into the new entity, exchanging full ownership of a smaller business for a meaningful stake in a larger one.

In practical terms, this can address many of the constraints SMEs face:

• Scale is created immediately, improving the valuation profile of the combined group.
• Founder dependency is reduced, as leadership and risk are shared.
• Systems and governance improve, supported at group level.
• Access to capital increases, enabling further growth or acquisitions.

Importantly, the underlying businesses don’t have to be perfect. What matters is strategic fit, operational quality and the ability to work together.

Rothbridge wrappers and roll-ups

We were founded to help SME business owners get more value from their businesses through M&A. Having been there and done it ourselves, we know the challenge as business owners to get to a satisfactory sale.

We currently have a series of wrappers that we’re expecting to bring to an exit this year. We have a roll-up of construction businesses, creative agencies, performance marketing, recruitment, mar-tech and travel marketing.

We’ve got clear, platform-led groupings by sector, with the potential for additional businesses to join existing wrappers, and the ability to re-shape the composition of wrappers. Many of our owners are looking for exits and to maximise their valuations, but many are also using the M&A process for growth.

A route to value

When you’ve spent many years building the business, realising you might have overestimated its value is a challenge. But you are capping the value potential of your business by standing alone.

M&A, when approached thoughtfully, can unlock that potential. Not by rushing an exit, but by changing the structure in which the business operates.

Most business owners don’t start with an exit in mind.

They start with an idea, a customer need, or a gap in the market. Once we get the business off the ground, our efforts go into building it into something. It isn’t normally until many years have passed that we start to think what an exit might look like – and that’s often prompted by change rather than planning.

So, when is the right to think about it all?

Give yourself time

The right time to sell your business is a personal decision, and there’s no such thing as a single ‘right time’. Unless you’re lucky, it’s unlikely that you’ll be able to make the decision quickly – it’s rare for buyers to come along and offer you the exact number you were thinking.

Instead it’s better if founders and business owners have a reasonable runway for what an acceptable exit will look like for them. Businesses have to get themselves ready for an exit, minimising founder dependency, rigour around governance, consistency in their financials and performance.

You might want to think about an exit in five or even 10 years’ time, but having a plan that helps you prepare for business exit should already be in your roadmap.

How can good businesses access their full value?

For some businesses, a direct acquisition will be a suitable exit, but for others, a standalone valuation will leave you a good degree shy of the value you want. Where growth is incremental for a business, buyers will often apply conservative multiples, and strategic buyers are selective, and often opportunistic.

This is where M&A can open up a broader set of outcomes.

Opening up your options

Well run businesses whose numbers can stand up to scrutiny can think about M&A wrappers as an opportunity to access higher valuations. Sitting alongside similar businesses either in the same sectors or in the same industry gives you a higher EBITDA and increased potential in your business opportunities. This is attractive to buyers.

We have a number of industry wrappers – across construction, performance marketing, IT and others – that have been able to collaborate on business deals and cross-refer internally, as well as participate in an M&A wrapper. Our clients create governance frameworks in anticipation of a sale, and some owners opt to stay, while others want the exit event.

Instead of leaving yourself frustrated and with one limited options, start thinking early about how, what and when an exit event looks for your business. If you’re impatient to sell, you’re missing out on better opportunities to get a satisfactory exit. Start preparing yourself and the business early, and give yourself the best shot at the best outcome.