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The Dating Game Of Small Business M&A


Entrepreneurialism is often about self-teaching. Business owners may be experts in their particular industries, but that doesn’t mean they’re always familiar with some of the back-end processes of running a company, like cash management and investing.

When launching a small business culminates in an entrepreneur ready to sell, this lack of financial literacy can spell problems.

That’s where SMERGERS comes in. The India-based online bank and technology platform aims to provide resources to SMEs that are looking for investors and acquirers.

According to CEO Vishal Devanath, these are the services that are lacking from other financial institutions.

“We have seen investment banks play a major role in providing capital, growth and liquidity for large companies, but a similar ecosystem doesn’t exist for small and medium enterprises,” Devanath said in a recent interview with PYMNTS.

Financial institutions that do offer these types of matching services can often charge retainer costs that are out of reach for the small business crowd, he added.

“Right from understanding what equity financing is, to actually finding an acquirer, to selling their business, there are several gaps which remain to be addressed,” Devanath said.

The platform connects SMEs to these investors and buyers but also acts as a resource for small business owners to understand what they’re working with. For instance, entrepreneurs can often go into the sales and investing process blind because they’re not entirely sure how much their business is even worth.

Devanath said SMERGERS has collected data on businesses across industries and geographical markets to help guide the valuation process.

“An issue we have observed in the market is that many deals fall through because of valuation mismatch between the buyer and seller,” the CEO explained. “This primarily arises because of a lack of data from comparable transactions.”

But there are other reasons a sale of a small business can hit a wall.

Today, Devanath said, there are plenty of websites in the market that serve as a classifieds section for businesses for sale. But, “most of these websites hardly have any verification process, which leads to fraudulent listings and introductions, putting your business at risk.”

Then, there’s the issue of a business owner with no experience in making a sales pitch.

“Over the past few years, we have seen several SMEs not being able to present themselves to investors,” the executive said. “They lack the required financial knowledge and pitching skills.”

From understanding how much a business should expect from a sale, to meeting up with venture capitalists and acquirers, to actually pitching and closing a deal, there is a complex process to small business M&A, and it’s one that requires certain skills. With SMEs unable to afford investment banks’ services, the self-teaching method may not always prove successful.

Global Expansion

Earlier this month, SMERGERS announced plans to reach new markets far beyond India. The platform is now launching operations in the U.S., U.K., Canada and Australia, a testament to the universality of the demand for this kind of guidance.

Global expansion means the pool of potential investors and buyers just got a whole lot bigger for these small business owners ready to sell. Traditionally, Devanath said, entrepreneurs were limited in how far they could float their contracts and pitches by geography and personal network.

But, for SMERGERS, this meant implementing a way for investors and sellers to conduct their business in their own local currencies.

“Being a technology platform, the first step before going global was to integrate different currencies across the world and exchange rates on our platform,” Devanath explained. But there’s more than foreign exchange to a cross-border investment deal.

He recalled one particular deal in which SMERGERS facilitated a cross-border investment end to end, meaning the firm handled regulatory compliance, fund flow and closure. Due diligence is key, he explained, and a global network means being able to provide guidance through the entire process across borders.

The Endgame

For some entrepreneurs, their small business might be their baby, with no plans to move on. But, for many, the endgame of launching a company is to sell, which, according to Devanath, business owners should be ready for at the moment that their business matures.

“The single most important advice to SME business owners is to start networking now with strategic investors and industry experts,” the CEO offered.

But even for those owners that aren’t ready to sign on the dotted line just yet, finding strategic investors is still key at a time when most SMEs are searching for a bank loan.

“We at SMERGERS feel that strategic partnerships and M&A is a much more powerful tool than credit money,” Devanath said. “It is similar to dating, and it’s our responsibility to bring two people with synergies together, rather than play a mediator between business and money for mere capital gains.”


New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.