Small businesses perfect targets for mergers and acquisitions

Small businesses perfect targets for mergers and acquisitions

Small businesses perfect targets for mergers and acquisitions

Small and medium-sized enterprises (SMEs) represent about 80 percent of the business fabric in Spain, so maintaining their competitive advantage in the current economic crisis is a key challenge for the government.

Measures have already been implemented:

  • As part of the 2012 labour reform, small businesses receive subsidies for hiring young people. Spain’s youth unemployment rate is currently running at around 56 percent.
  • Spain and Germany have reached an agreement to facilitate private investment in competitive Spanish SMEs with a significant potential to create jobs.
  • Leading banks, like Santander, are trying to alleviate the impact of the stranglehold on credit by offering SMEs credit lines with favourable conditions.

SMALL IS BEAUTIFUL

Many of Spain’s SMEs have traditionally been family-owned and focused on the services and commerce industries.

In January 2010, the sector with the most SMEs was food and beverages, followed by construction and specialised retail trade, according to Industry Ministry data.

A medium-size business is considered as one with less than 250 employees and an annual turnover of up to 50 million euros. A small business is one with less than 50 employees and annual turnover of up to 10 million euros.

One advantage of running a small business is the capacity to quickly adapt the manufacturing structure to meet changing market demands. SMEs can also operate in niche markets, offering customers more specialised and personal attention.

Spain’s SMEs rode the crest of the wave of the decade-long economic boom which began in the mid-1990s. Many benefited from government subsidies and reduced corporate tax rates. Domestic demand for goods and services was buoyant, and credit was flowing. Once the economic crisis began to bite, consumer demand declined and financing dried up for companies. SMEs were particularly vulnerable , as they were perceived as running a greater risk of defaulting precisely because of their size. Many SMEs folded. According to the Spanish Social Security office in October 2011, nearly 180 companies had gone into liquidation since end-2007, most of them small businesses.

ARE MERGERS OR ACQUISITIONS THE WAY FORWARD? 

If Spain’s SMEs want to stay in the game and not see their businesses either fail completely or be bought up by a competitor, then a tie-up with a sector peer makes sense. A merger provides opportunities for synergies, increased market share and improved financing possibilities even in the tough times. It also enables companies to take advantage of the uptick in Spain’s exports, given that many medium-sized firms manufacture engineering goods for sale overseas.

Exports are currently 15 percent higher than pre-crisis levels and are expected to rise by 4.2 percent in 2013, topping the European average, according to the European Commission.

Questions? Contact Argali Abogados for more information!

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