WITH the economic climate remaining a challenge for most businesses, industry observers think that mergers and acquisitions (M&A) could be a strategy to help sustain small businesses and give them a much needed boost in preparation for a recovery.
According to the Entrepreneurship Development and Cooperatives Ministry in a Parliamentary written reply dated Nov 5,2020, a total of 32,469 SMEs had folded since March 2020 when the movement control order (MCO) was first implemented to curb Covid-19.
While leading indicators show that there has been a pick up in new company registrations in March this year, many other companies have, notably, suffered from reduced revenues and reserves.
“There are certainly advantages from a business standpoint in terms of entering into an M&A transaction and there are also different types of M&As that Malaysian entities typically partake in, ” says Cassandra Nicole Thomazios, partner from MahWengKwai & Associates, in a statement.
She adds that M&As could be a practical strategy for SMEs.
Acquisitions can quickly and dramatically shift an organisation’s position by improving accessibility to new markets and fundamentally change its market position, she highlights.
Despite the ongoing pandemic, the firm notes an increase in acquisitions of SMEs by bigger companies, especially from within the same industry.
Given the increasingly competitive landscape and financially constrained environment, she notes that it is important for corporate leadership to identify and pursue growth opportunities that will strengthen their organisations’ market position and financial performance.
“Growth strategies that include developing new service lines or markets, expanding existing service offerings and markets served, entering into joint ventures to develop or expand services and markets are outweighed by the advantages of merging with or acquiring existing operations from competitors, or other providers, ” it says.