Acquisition momentum is building across the globe, even in a country like Malta, which is uncovering some exciting mergers and acquisitions (M&A) opportunities for 2015 and beyond.
There is a positive economic outlook, which is encouraging entrepreneurs to engage in M&As as a means of expanding their business. Historically, M&A featured in a limited manner on the local corporate agenda, strictly the domain of a few pioneers to the M&A field. More recently we are experiencing a marked increased acceptance that M&As could really deliver the goods
Naturally, there are a number of supporting factors that affect the drive in deal activity. Perhaps one of the more crucial being the cost of finance. The hunt for yield coupled with low financing costs are rendering M&A deals more attractive.
There is also a growing local awareness on the opportunities and the process. Experience has shown that it is the lack of such knowledge that acts as a major barrier to deal-making. It is not the first time that a deal has been derailed in view of misunderstandings arising as a result of a party being unfamiliar to the process.
The limited size of the local market is also emerging as another deal driver. Consolidation unlocks econ-omies of scale, could improve one’s negotiating position with suppliers and clients and diversifies risk onto a broader operation.
Additionally, entrepreneurs are now looking at M&A as a mode of entry into complementary markets, arguing that acquiring an existing entity provides a better success rate when executing plans to enter new markers. Securing an established player, with access to an existing client base and help by an assembled team increases chances that your foray into the new market would be a successful experience.
Not all deals have gone through significant and thorough strategic pre-planning. Opportunistic deal-making has been on the rise with entities with finance available seizing opportunities that came their way. Moreover, your know-how and skill could be rapidly monetised when those specific skills are deployed in new markets or on newly acquired clients/projects.
This begs the question: which will be the most active local industries in 2015? There are three which are likely to retain their leader rankings in terms of local M&A: financial services; gaming; and ICT.
Additionally, there are also consumer markets such as importation and retail, alongside logistics (which is inherently advantageous due to Malta’s location within the Mediterranean).
With regard to financial services, the challenges posed by growing regulation are making it increasingly expensive to operate on a small scale, which might open a window of opportunity for offshore large-scale operations.
The scalability offered by software IP could have far-reaching appeal to foreign companies seeking a new technology to deploy through their established distribution networks.
Matching the quality of local ICT skills with international demand at attractive rates is another compelling model that could be unlocked via a deal.
Throughout the M&A journey one would need to juggle a number of deal risks. Maintaining focus on the current operation while navigating a deal could be a stretching task in itself. Handling sensitive business data exchange is another one. There is also the cultural aspect to be closely studied and managed as the HR asset risks being impaired if mishandled.
Buyers are encouraged to develop a well-articulated integration plan that ensures the right focus on key tasks to be performed to ensure a successful acquisition. Such a plan should capture the findings of the due diligence process, which should also feed into the pricing exercise, whereby one could confirm or dispel the assumptions underpinning the offer.
Unquestionably, now is the perfect time to consider making the right move. First-movers could well steal a march on their competitors and secure positions of strength in the markets they serve or new, exciting pastures to sow and reap.
David Pace is a partner with the deal advisory section of KPMG.