Mergers and acquisitions (M&As) can be an exciting growth strategy for SMEs eager to expand their reach or tap into new opportunities. However, the process itself is often more complicated than it appears, filled with potential pitfalls. Without the right guidance, it can lead to missed opportunities and costly mistakes. In this post, we’ll dive into five key complications that often arise, and how M&A advisory can help navigate them to pave a successful outcome.
#1 Misalignment in Expectations
One of the most common challenges is the misalignment in expectations between two parties. For SMEs new to the concept of M&As, this often stems from not fully understanding the process and its purpose, especially when entering discussions with a more established buyer.
A major hurdle is differing price expectations. SME owners might assume that their company’s growth or interest from another party automatically justifies a high selling price, even if this does not accurately reflect the company’s financial health or market position. Such inflated price expectations often stall negotiations, frustrating both buyers and sellers.
This is where expertise from a leading M&A advisor like us at Nihon M&A Center Malaysia can be invaluable. An experienced advisor can provide a comprehensive market analysis and financial assessment to establish realistic and data-driven valuations, helping to keep negotiations on track. Just as importantly, we help identify the right synergy between buyer and seller to ensure a successful long-term partnership. By focusing on finding the right match, we aim to create an operational alignment that benefits both sides, ensuring smooth operations from the outset for long-term success.
#2 Cultural Differences
Cultural clashes can derail M&As, especially in cross-border transactions. For instance, differences in negotiation styles (direct versus indirect communication) can create friction, impacting trust – not a good start! More detrimental is when these differences are not addressed from the outset, which can hinder the development of a strong working relationship, impacting productivity.
Our experience dealing with cross-border transactions demonstrates that understanding and respecting different cultures is crucial not only for the success of the M&A but also for maintaining relationships that contribute to its sustainability. In this aspect, our Japanese buyers are known for their sensitivity to the cultural nuances of the companies they acquire. They typically strive to integrate their operations while preserving the acquired business’s existing culture. Post M&A, it is common for our Japanese clients to send team members to the Malaysian company to facilitate integration while preserving the acquired company’s culture. This respect for existing practices along with our guidance helps create a harmonious transition, promoting long-term success for both parties.
#3 Lack of M&A Understanding
Many SME owners underestimate the M&A process. They assume it is quick and straightforward, that all it takes is agreeing on a price and signing the agreement.
In reality, the M&A process is multifaceted. This is because M&As happen for various reasons: Growth opportunities, strategic partnerships, market expansion, or even a strategic exit opportunity for shareholders, enabling them to liquidate their holdings and realise the value of their investments. Additionally, sellers must evaluate the profitability and scalability of their own company, identify any regulatory restrictions when selling to a foreign buyer, and clarify their reasons for pursuing an M&A. Having a clear understanding of how the M&A fits into their overall business strategy is essential.
Unlike many M&A advisory providers who primarily source financial investors, we focus on strategic investors who align with the seller’s goals. This approach gives Nihon M&A Center Malaysia’s clients a distinct advantage, as strategic investments typically maximise synergy and support sustainable growth. Additionally, our expertise extends to navigating regulatory restrictions on both sides of the M&A process. We proactively address these restrictions, structuring the deal to overcome potential barriers and ensure a smooth, compliant transaction.
#4 Complexity of the Process
An M&A isn’t simply about finding a buyer and signing the dotted lines. The journey is complex, involving numerous moving parts. With such complexities, it is only normal for M&A buyers to seek extensive information about the company they are considering.
Many of our Japanese clients take considerable time to thoroughly evaluate the company’s operations, financials, and growth potential. SME owners should understand that providing detailed information is crucial to attract the right offers and set the M&A on the right path.
Transparency is key as well as aligning objectives. Fostering transparency from the outset is necessary to assist companies in addressing issues early on, ensuring that nothing complicates the transaction during critical phases like Due Diligence. Meanwhile, an M&A is ultimately about matching the right buyer with the right seller to create meaningful synergies. Failing to do so can lead to a mismatch that diminishes the intended benefits of the M&A, resulting in wasted resources and missed opportunities.
#5 Financial Realities
Some sellers hold out for high prices despite unfavourable financial conditions, while buyers struggle to balance valuations with their objectives. This tug-of-war can lead to friction in negotiations.
Our approach focuses on aligning financial expectations with actual data and fostering transparent discussions. By understanding each party’s perspectives, we help create a more collaborative environment that increases the chances of a successful deal.
Our Role in Your M&A Journey
As your M&A advisor, we are with you every step of the way:
- Preliminary: We start with an introductory meeting to introduce our company, our services, and the entire M&A process while managing client expectations from the outset. We also provide a preliminary valuation for sellers to understand their company’s value.
- Matching & Meeting: We source buyers and sellers to ensure we pursue mature deals with higher success rates.
- Execution of MOU: We formalise the intent to proceed.
- Due Diligence: We conduct thorough evaluations to identify potential issues. To safeguard the seller’s information, we assist in engaging a Virtual Data Room (VDR) provider, with the associated costs covered by the seller.
- Final Agreement (SPA) & Closing: Before concluding the deal, we assist in appointing lawyers to finalise agreements, particularly in negotiating terms, fulfilling conditions, and managing share transfers. Additionally, our organisation will also coordinate the signing and closing ceremonies.
M&As can unlock significant growth for SMEs, but success hinges on clear expectations, transparency, and compliance. At Nihon M&A Center Malaysia, our extensive network both in Malaysia and Japan equips us to bridge gaps between potential buyers and sellers. We foster collaboration and open communication, ensuring both parties’ interests are represented, addressing challenges promptly, and providing ongoing support.
Understanding and knowledge can make the difference between a successful M&A and one that falls short. Let us guide you through the challenges and complexities of M&As to unlock the potential of your business.
