The benefits and challenges of programmatic M&A for small and medium-sized businesses

Programmatic M&A is all about the systematic and serial execution of many small deals that can optimize returns for many organizations. The growth of M&A has accelerated in the last few years. This blog highlights major benefits and challenges of programmatic M&A for small and medium-sized businesses.

Benefits of programmatic M&A for small and medium-sized businesses

● Diversification of risks

In the case of large deals, a high risk can take place. But in programmatic M&A, multiple small deals are considered for business engagement, despite focusing on a single large deal. Hence, there is less risk than failing one large deal. For example, among 3 deals, if 1 small deal fails, the risk will be less. Hence, for small and medium-sized businesses, where big failure can lead to severe impacts, programmatic M&A can be beneficial for them.

● Easier to execute

Programmatic M&A can deliver an effective strategy for building new services, capabilities, and businesses. Besides, despite focusing on large deals, it can empower businesses to engage in small deals around a theme. As large deals take a lot of time for execution and integration, prioritization of programmatic M&A makes the whole process easy to execute. Furthermore, if it can be executed properly, it can strengthen the opportunity of getting a competitive advantage. In this way, companies can set specific achievable expectations of organizational growth as per their potential, even in fluctuations of market situations.

● Higher shareholder returns

Successful M&A can go beyond due diligence, get the deals documented and then close. Furthermore, it can identify post-closing disputes through programmatic M&A. Multiple competencies due to acquisitions helps to beat the competition and in this way, it delivers higher shareholder returns.

Challenges of programmatic M&A for small and medium-sized businesses

Knowing the challenges of programmatic M&A is important as it helps to identify the critical aspects of strategy implementation.

● Lack of sufficient M&A pipeline

Pipeline management of M&A works as a beneficial method to evaluate and prioritize current, past and future deals and integrate every deal stage seamlessly. However, for small as well as medium-sized businesses, it can be very challenging due to lack of sufficient M&A pipeline. Hence, it becomes critical to track different deals simply and easily.

● Limited bandwidth of continuous source deals

We have observed that lack of potential resources for sourcing the best deals has become a major issue for making as well as executing successful strategy of programmatic M&A and using the M&A platform properly. The traditional model of investment, led by banking to get leads has broken. As a consequence, most organisations depend on inbound leads. In this regard, due to limited bandwidth, the identification of good deals among bad deals has become quite difficult. On the other hand, insufficient audit, inadequate verification, and partial analysis can make it difficult to understand the deal nature as well as the risks in the process that can impact the informed decision quality.

● Absence of proper data and intelligence systems in companies

In maximum cases of small and medium-sized businesses, secondary data is used for the qualification of deals. As a consequence, they lose opportunities to get many good deals. On the other hand, sometimes, data is hidden and it only becomes exposed when you get private data from any seller. In such circumstances, a lack of proper intelligence and data can negatively impact programmatic decision-making. As a consequence, the wrong companies can be targeted for M&A.

● Slow pace of closing and sourcing deals

This slow pace can lead to negative impacts on the success of programmatic M&A strategy. Good sellers usually get multiple offers. For this reason, if you want to target good companies, you have to be very fast. Slow decision-making can also lead to difficult situations due to economic uncertainty and fluctuating inflation.

End note

From the above discussion, it can be summarized that programmatic M&A can deliver reliable value as it comprises many smaller deals. It can make good returns when it is properly executed in a repeatable and systematic way. In contrast, execution of this strategy can be challenging due to a lack of sufficient M&A pipeline, limited bandwidth of continuous source deals and slow pace of closing and sourcing deals. If you want to save your valuable time for sourcing, hunting, and screening companies for M&A strategy, contact GrowthPal professionals today.