It seems that 2015 will be remembered by local economy operators as the years of mergers and acquisitions, as companies consolidated to futureproof their momentum – but will the trend continue in 2016?

Anita Aloisio, the partner for specialist advisory services at Nexia BT, believes that these mergers may be a signal that organisations may have already reached the maximum level of organic growth.

“Those companies would have reached their growth potential with their existence level of competence. Since we all know that developing competences and building organisations is a long winding road, combining these skills with those of existing organisations may indeed yield quicker results,” she said.

“Mergers, when managed and implemented with discretion help organisations to immediately increase their capabilities and resources, both physical and human and also offer the opportunity to extend the range of services, thus reaching a wider client base.”

In the local context, this concept might actually make even more sense, since human resources are limited and competition is very fierce.

“Rather than help with attracting with recruitment per se, a merger might attract candidates who aspire to work for a larger organisation that can offer interesting career paths,” she added.

One sector that has seen considerable consolidation is the insurance one – but sometimes this means less competition and fewer options for clients.

Fiona Borg, the chief operations officer for business development at MIB, lamented that the number of insurance companies and agencies to write Maltese risks have gone down to five insurance companies, two Lloyds’ agents and three agents for international principals. The rest are branches, agents or tied insurance intermediaries of the same local insurance companies.

“This means that at most you can only have 10 different quotations, or fewer depending on the risk to be insured. As an independent insurance brokerage firm operating in Malta for 40 years, servicing most of the top corporate entities in Malta, we sometimes have no other alternative but to seek quotations direct from the international market to offer the clients a wider spectrum of insurance alternatives, prior to securing the policies.

“Without this approach, a client approaching different brokers will have a limited choice of solutions,” she said.

The pressures posed by each new regulation makes it harder for companies to survive alone, and Ms Borg said that the Insurance Distribution Directive that will come into force in two years’ time will be no exception.

“This could mean that smaller firms may be affected badly, with more potential mergers and acquisitions to be seen in the coming years.”

With the economy due to grow by 3.6 per cent this year, ancillary services are also seeing rising demand

Of course, the insurance sector is not the only one looking warily at Brussels. The financial services sector is concerned about attempts to harmonise tax in the EU – in spite of the fact that tax is only one of the country’s competitive advantages.

Josef Mercieca, senior tax manager at BDO Malta, still believes it would cause considerable upheaval: “Being unable to control the level of taxation for companies based in Malta and the fiscal incentives granted to foreign investors to utilise Malta as a tax-friendly jurisdiction could make us lose our competitive edge, endanger thousands of jobs and damage our economy.

“The introduction of such a system would mean that Malta would have to fundamentally change its tax model and be immediately put at a disadvantage. It is of paramount importance that Malta keeps challenging and resisting such harmonisation attempts,” he said.

BDO chief executive officer Mark Attard said this meant it was more important than ever for Malta to build on past success.

“Malta needs to develop and modernise the services presently offered, while moving ahead of its competitors by expanding its service offerings to attract virtually untapped foreign investment in other areas of this industry.

“A large part of Malta’s success in this industry can be attributed to its reputation as a highly regulated jurisdiction and while it’s imperative to retain this reputation we must do so efficiently and effectively,” Mr Attard said.

EU Directives can also create opportunities for local companies. The Waste Electrical and Electrical Equipment Directive, better known as WEEE, means a new niche for GreenPak Coop Society Ltd this year.

Chief executive officer Mario Schembri believes that the new system will be more effective than the eco-contribution system, which is being dismantled.

“Many believe mistakenly that eco-taxation brings about solutions in the protection of the environment. After 12 years since eco-taxes were imposed on many products, the government is convinced that such fiscal instruments do not lead to recycling of products and is removing the eco-tax regime.

“Since setting up GreenPak in 2004, the cooperative has maintained that taxes do not lead to an increase in recycling. Rather, GreenPak operates an industry-owned waste recovery scheme that recycles thousands of tonnes of waste materials on behalf of the companies that own GreenPak,” he said, explaining the innovative business model.

“Today, GreenPak provides waste recovery services – free of charge to the public – to over 70 per cent of the Maltese population, a system financed by over 1,300 companies.”

With the economy due to grow by 3.6 per cent this year, ancillary services are also seeing rising demand. Thomas Smith did not opt for M&A but rather for diversification, feeling that it was better to be able to offer its clients a comprehensive shipping service to cater to growing imports, exports – and the removal of personal effects.

Managing director Joe Gerada explained that clients satisfied one particular service tended to stay with the provider for others, “until we become the true one-stop shop for him”.

With diversification, the trick is to maintain the same high standards across all areas of activity.

“We have put a lot of effort and investment to get here. Being established for over a century-and-a- half, we have had enough time to do this,” he smiled.

“If you can maintain the same wavelength as an industry leader then you can be easily accepted as a supplier to that leader.”

For some companies, growth will come from internationalising but that brings its own risks, as the local companies have to take a leap into the unknown. There are, however, more tools than ever for doing due diligence.

Simon Camilleri, the CEO of Creditinfo Malta Ltd, said there was no excuse to plead ignorance.

“We provide company and individual international reports which mean Maltese companies can trade with a lot more transparency and confidence. Many companies have had their fingers burnt relying on verbal recommendations or just taking a risk – for the sake of a few euros! Information is available on virtually any company in the world. One mistake on a big order can force a company to close,” he warned.

Of course, with so much competitive pressure, companies have to look after every cent – which makes credit management very important.

“Most definitely, with the economic challenges in Europe and tighter credit controls, by law many companies have to carry out due diligence. Every week there is a new story regarding money laundering, or a collapsed business. Companies should make calculated decisions based on information provide. If you credit check someone first, there is a greater chance you will get paid,” he stressed.

For some companies – those that offer online services – there are simply no borders at all, but that does not mean there are no challenges. Fexserv Financial offers foreign currency services and general manager David Borg Hedley said some events were already on the horizon – the possible British referendum on EU membership; presidential elections in the US and other countries – but others would undoubtedly crop up.

“Exchange rates very much depend on a number of these factors and hence we believe that that volatility will be no less than what we have seen last year.”

Apart from benefiting from being online, Fexserv also has the advantage of technology, which will continue to offer it new ways to serve its clients.

Web filtering is not about being big brother or about spying on your employees but about actively protecting the company’s assets and making sure employees are happy but also productive

“Statistics overseas have shown that adoption of financial technology could double among digitally active consumers within the next 12 months and we believe that Malta will not be far off. The smartphone has incorporated our alarm clock, camera, diary and so many more things we used to use other gadgets for. Payment solutions and money transfers are the next big thing for these impressive devices.”

Of course, technology comes with its own downside and GFI Software has been very successful at protecting companies that rely on IT.

Sergio Galindo, president and chief operating officer at GFI Software, admitted that while the internet was a wonderful thing many business owners may not be aware of what risks unfiltered internet access can have, not only on employee productivity but also on company resources.

“These days, social media seems to be the worst offender when it comes to lost productivity and bandwidth wastage. Web filtering software can help businesses preserve users’ productivity but at the same time leaving the internet open to productive web browsing. Sites like Facebook, Twitter and even news sites can be blocked or alternatively, a time limit can be set on the amount of time used on these sites. This way, your employees can still access their favourite websites without affecting the company’s bottom line.

“Web filtering is not about being big brother or about spying on your employees but about actively protecting the company’s assets and making sure employees are happy but also productive,” he said.

Of course, some companies can only grow locally due to their very nature. Three companies that are a great example of this are marina operators Creek Developments, dry-cleaning company Portughes, and boutique hotel management company Hotelogique.

Sarah Gauci Carlton, the commercial manager of Creek Developments, said that when there were no expansion opportunities, the option was to exploit its resources to the maximum.

Over the past few years it has become established as a winter berthing destination of choice, attracting a discerning international clientele during the off-peak season when berths are available. There is also a high incidence of returning and recommended long-term winter visitors, both international and from other local marinas.

“With a focus on quality, after five years of intensive investment in the infrastructure and human capital of the Msida and Ta’ Xbiex Marina, Creek Developments is well on the way to achieving its goal of becoming the standard-setting Mediterranean marina,” she said.

For Portughes, the challenge is to retain and acquire customers locally, which it does by focussing on excellence and precision, a reputation built up over its 100-year history.

Managing director Ian Portughes explained that staff are trained by professionals in the UK, while equipment and chemicals are constantly updated and upgraded, not only offering the latest technology but also more efficiency in terms of cost price and time.

For Hotelogique, the challenge is a different one: boutique hotels are a relatively recent development but a niche which is growing faster than anticipated.

Managing partner Jan Karl Farrugia helps owners and investors wade through challenges ranging from sales and marketing of the properties, to staff selection and training, leaving them free to look after daily operations and finances.

Apart from that, when dealing with hotels of a low number of keys, it makes more sense to have an overall holistic operational service.

“The key element is safeguarding the property, which is the main asset of the investment, while at the same time selling the rooms at the best market rates. Our involvement is normally six months to a year before the opening of the hotels, and we have refused projects that we feel that would not be viable for the investors and us as a management company.

“There is clearly a lot of interest as is evident from applications and ongoing developments – and not just in Valletta and the Three Cities. The service we provide, to selective projects, ensures that the hotels we operate will survive when the competition grows, and also when times get tougher.”