A new survey has found that 47% of Australian SMEs are planning to grow through acquisition in 2009, as they defy the recession and look to build scale and enter new markets.
The survey of 250 firms with between 20 to 299 workers by accounting firm Grant Thornton found businesses in the resource rich states of Western Australia and Queensland were the most aggressive, with 56% and 54% of respondents from those states planning an acquisition.
The most common reasons for an acquisition are to build scale (47%), enter new geographic markets (39%), and access lower-cost operations (29%).
Tony Markwell, national head of privately held business at Grant Thornton, says he has had a busy year helping clients expand after the collapse of competitors, particularly in the struggling construction sector.
He says that while most firms have been hit by a drop in revenue, good companies have already adapted and are looking for opportunities to grow.
“While there’s been a drop off in most industries, the drop off is not so severe that well-managed companies have become unprofitable. The well-managed have adjusted, but the not-so-well-managed companies are struggling – and that’s creating opportunities.”
But there is one big hurdle to expansion plans – the banks.
“The big thing that they are taking for granted is finance. They think it will automatically be there, but they are finding it’s not the case. Getting the bankers’ support is the biggest hurdle.
“I’ve never heard the phrase ‘show us your three-way forecast’ come back from the bank so consistently,” Markwell says.
He says the three-way forecasts – which combine a profit and loss statement, a cashflow statement and a balance sheet – has become the crucial risk-assessment tool for banks and finance companies.
“We’ve done six of those three-way forecasts in the last three weeks. We might have done six in all of last year.
“The people who are expanding have had to provide a lot more information and a lot more consistent information to their banks.”
Markwell’s advice to companies looking at acquiring a weakened competitor is to do plenty of research and make sure you are not simply buying yourself another set of problems.
“I’m not helping buy distressed companies, that’s for sure. Buying competitors’ assets or pitching for work is the way you want to grow.”
But even when pitching for work that a collapsed competitor has been forced to abandon, Markwell urges caution.
“The last thing you want to do is pitch for unprofitable work. If they couldn’t make it pay, chances are you won’t be able to either.”
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James was the editor and publisher of SmartCompany and LeadingCompany for five years. He is now the Australian Financial Review‘s companies & markets editor, and a former BRW editor.
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