Mergers a way to grow

ENTREPRENEURS: ADVICE ON HOW TO USE THEM In theory, a merger strategy can benefit smaller businesses, as a lack of resources is the greatest challenge entrepreneurs face.

Every entrepreneur has a desire to grow their business relative to their ambition. Some are content with a one-branch location, while others desire a footprint across multiple geographies including cross-border and even overseas. To accomplish that, there is the general method of growing organically through opening new locations. However, there is also the option of a merger strategy.

By definition and in contrast to an acquisition, a merger is generally understood as a coming together of two equally-sized businesses to become one, whereas an acquisition is a larger business taking over a smaller business.

It is however, extremely rare to hear of two small businesses joining to become one. A merger strategy is in most cases associated with corporations. But it would seem on the surface that a merger strategy would theoretically benefit smaller businesses over corporations and for one simple reason: resources.

A lack of resources is the greatest challenge entrepreneurs face; resources include finances, equipment, employees, distribution networks and even a network of influential business contacts. Additionally, a merger strategy would accelerate one’s growth and expansion ambitions. It therefore should make sense for two or even three small businesses to join forces, with each party bringing whatever resource they have. Conversely whatever each party lacks would be supplemented by the other(s).

This is in contrast to corporations, which in most cases have resources but still deploy a merger strategy. Corporations in most cases have access to finance, skilled personnel, international markets and all other necessary resources. Wouldn’t it rather make more sense for smaller businesses to explore merging with one another as a possible solution to their lack of resources?

However, while small business mergers theoretically make sense, they are difficult to implement. To begin with, a merger requires a mutual and mature relationship between all parties for it to succeed. And the biggest hurdle starts with the simple question of who is going to run the company? Entrepreneurs are their own bosses and merging requires one of them to give up the reins.

Secondly, is it really possible to find two businesses of equal size? One party will always argue that they are bringing more to the table and therefore demand a larger equity stake in the combined business.

Then there are the softer but equally important aspects such as company culture. Every company has its own DNA and one of the reasons mergers fail, even on a corporate level, is a failure in integrating culture. Structure, systems, policies and procedures all have to be integrated from two businesses into one company.

Nonetheless, however difficult mergers may appear, resources are still a stumbling block and maybe it’s time small businesses looked more to collaboration with one another over operating in isolation.

Munya Duvera is CEO at Duvera Elgroup