Singapore trade agency International Enterprise (IE) Singapore said there is a growing trend of SMEs involved in overseas M&As. According to SMEs, mergers and acquisitions (M&A) are the most cost-efficient method of venturing into new markets. One local Singaporean firm that has expanded internationally through M&A is Singapore Aerospace Manufacturing (SAM).
IE Singapore provides financial assistance for Singapore-based ventures pursuing M&A strategies abroad via grants. According to Angeline Chan, IE Singapore’s group director for capability development, it approved a total of S$5.2 million worth of grants for related activities over the 2013-2015 period.
IE Singapore’s Internationalisation Finance Scheme aims to address the constraints firms face in getting traditional M&A funding. Its Global Company Partnership grant also covers the initial stages of strategy development and due diligence, along with valuation and post-merger integration.
One recipient of these schemes is Sierra Solutions, a professional services provider focusing on IT healthcare solutions. April 2015 saw it acquire SIT-Matters SL (now Sierra Med-IT Spain SL), a Spanish firm with offices in Barcelona and Merida.
“We were business partners for around three years prior and it made natural sense for us to come together as one company to leverage on each other’s strength in terms of skills and talent. SIT-Matters was a natural choice as they complemented gaps in our skills and experience. In addition, they give us access to the Central Europe market,” said Ranjan Vaswani, founder and CEO of Sierra Solutions.
According to Vaswani, IE Singapore subsidised Sierra Solutions for up to 70 per cent of acquisition expenses. This includes fees to its local adviser as well as legal and tax advisers in Spain.
In an IE Singapore report on Southeast Asian M&A trends release in April 2014, which was authored by Daiwa Capital Markets (Singapore), Singapore was noted as a net acquiring nation, with 648 outbound deals over the 2013/2014 period. 2014 saw 609 acquisition deals by Singaporean firms, with a value of US$60.2 billion.
Singaporean and Malaysian firms were the most acquisitive, with Singaporean transactions being higher in value and focus on the real estate, power & energy sectors and technology, media and telecommunications (TMT).
David Emery, chairman of M&A advisory firm Reciprocus International, said more local SMEs are doing M&A deals abroad. With an M&A transaction costing between S$60,000 to S$150,000, Emery explained: “You need lawyers and accountants and sometimes even translators. These are examples of third-party costs.”
Reciprocus conducts market research for clients, finding, profiling and matching potential partners in a few countries that can serve a strategic purpose, in a confidential manner. Singaporean firms are often advised to partner with foreign firms that have values aligned with the corporate vision and mission, as well as organisational competencies, capabilities and strengths that are complementary, in order to forge an equitable partnership.
Another necessity for forming partnerships with foreign firms requires that potential partners should possess technologies, unique products, services and capabilities which mutually supplement the combined portfolios.
According to Emery, the boom in SME M&A transactions started four or five years ago, when more young entrepreneurs started entering the scene by forming their own businesses or taking over their family business.
“This new generation is more open to trying new things. They are more Internet-savvy, so partnering someone abroad is no longer limited by borders,” Emery said, adding that a desire to tap a partner’s familiarity with foreigns markets abroad, as well as incentives provided by IE Singapore grants, motivated firms to explore M&A options.
Emery’s advice for small firms starting out on foreign expansion and the entrepreneurship it entailed was to share: “The success rate of start-ups is less than 50 percent. I would say close to a third make it through the first three years, which is the critical time period for survival.”
Emery added that the difficulties entrepreneurs and businesspeople might face abroad were the trustworthiness of foreign partners, differing regulations and legal environments encountered in other jurisdictions. He did note that SMEs should not be discouraged by pitfalls during business ventures, instead using them to learn and refine their skill sets, as well as building a credible business profile.
Emery concluded: “Also, it is important to not get distracted from your core market, meaning do not neglect your home country. If you haven’t seen the abyss, you won’t have a successful start-up.”