1. For small business owners looking to sell their businesses, finding a buyer is often the toughest part of any potential merger and acquisition (M&A). Unlike large businesses, small businesses lack a brand, market share, and transparency in corporate governance. The chances of an outsider buying a small business are so low that, in my 30 years as a corporate lawyer in Singapore, I’ve seen and transacted fewer than a handful of such cases.

  2. What is more common is for owners to sell their majority and controlling stakes to long-time senior staff and employees. Unlike the “vertical” or “horizontal” mergers and acquisitions seen with larger companies, I refer to this type of M&A as a “succession” acquisition.

  3.  What makes mergers and acquisitions work? I am asked this question many times. In my experience, I think sellers need to communicate better to potential buyers. They need to explain why buying their company is a good investment.
  4. Several economic reasons can make a company an attractive investment from the buyer’s perspective. The 4 most common reasons are:
  5. To extend their market
  6. To extend their product or services
  7. To take out competition; and/or
  8. To improve supply chain.
    These are not mutually exclusive, as there can be a combination of intent. I shall refer to these as “economic intents”.

  9. In succession acquisitions, we don’t typically consider them true mergers or acquisitions because the potential buyer usually doesn’t express any economic intent. There is an imbalance of interests because for the seller it is a way to retire and get a post-retirement pay out, while the interests of the employees who “acquire” the company may just be to perpetuate the existing business; unless the employees can revamp the company towards any of the 4 usual economic intents.

  10. Knowing your buyer’s economic intent will also assist greatly when it comes to negotiations and valuing the company. An example of a successful merger and acquisition involved my clients, who wanted to sell their company. They were in the event organising industry. It was well known within the industry they had a unique event. When they started to put the word out that they were selling their company, the market immediately understood the value of the company was really in that unique event. So naturally, they attracted potential buyers who wanted the unique event to “extend their product/services” range. The merger and acquisition was eventually a success. I attribute their success to clear communication of the economic intent.