Investment firms, also known as private equity firms, are playing an increasingly significant role in SME acquisitions. Whereas previously businesses were mainly sold to strategic buyers within the SME sector, investment firms now account for more than half of all SME acquisitions.
In recent years, an increasing number of smaller investment firms have emerged that specialise in SME acquisitions, often focusing on one or more specific sectors. Expertise in a particular sector is combined with a significant amount of capital.
Larger investment firms are also interested in SMEs. They invest using what is known as a ‘buy-and-build’ strategy. By acquiring several similar companies and operating as a group, they realise synergy benefits between these companies.
A key reason for the rise of investment companies is that the role and use of banks – and consequently the nature of investing – have shifted in recent years. High-net-worth individuals are increasingly investing their money directly in investment companies, rather than investing through a bank, which in turn invests in larger investment companies.
When the economic outlook is uncertain, strategic buyers tend to be much more cautious about acquisitions. Investment firms, on the other hand, have surplus capital available that needs to be invested. If they leave this money in their bank accounts, high inflation will simply erode its value.
SME entrepreneurs are also hearing more and more success stories, which is lowering the barrier to working with an investment firm.
At VWG, we’ve also noticed that an investment firm is involved in an increasing number of acquisition processes. Are you an SME owner looking to grow your business, seeking opportunities for expansion, or considering selling your company? If so, please get in touch with our acquisition specialists to explore the options.