Many assumptions exist about the effects on SMES when sold, but little research has been done on the subject. We at Tekes are particularly interested in what happens to the technology and knowledge-intensive SMEs that we have funded. Does the Finnish economy and society benefit, or does another country reap the rewards?
We have just completed an extensive study, in which we analysed business development in 250 Finnish SMEs three years before and after they were sold. Our data covered Tekes-funded SMEs that were sold in the period 2007–2011. We also interviewed the former owners or managers of 20 companies, as well as two active buyer companies.
So, how were the companies faring three years after being sold?
New owners accelerate growth
The interviews revealed that the most common reason for selling up was to improve the company's international growth opportunities. The SME was often sold at a point where the limits of growth as an independent firm had been reached and a new foreign player could bring additional resources and distribution channels. As the downside, the founders had less say in how the company developed.
No matter whether the SME had been bought by a Finnish or foreign company, its turnover, number of employees and value added grew, on average, after the sale. Such growth was faster than before the sale, indicating that the acquisition had been a success.
No interest in technology alone
The interviews reveal that most of the companies sold were offering products for which there was a proven customer need and demand. Buyers are interested in companies with a genuine focus on service development and listening to the customer.
Our expertise grows
Key employees in the SME benefit in terms of their personal skills, which can often be applied in other companies established by the new owners. They become serial entrepreneurs who set even higher goals for the new company. For venture capitalists, finding a new owner offers the opportunity to exit and gain a return on their investment. A functional venture capital market enables investments in promising startups.
Acquisitions as part of the growth strategy
Our analysis suggests that the Finnish economy benefits from the sale of SMEs, even if not every acquisition is a roaring success. Very rapid growth of turnover, at more than 20 percent per year, has been achieved in the best-performing companies. These top-growers accounted for around 10 percent of the 250 SMEs we evaluated. On the other hand, the SME had been sold on or transferred to another company in a quarter of the cases. In any case, acquisitions offer a great way of realising the sold company's growth strategy and injecting dynamism into the economy.
When considering making acquisitions, Finnish companies should note that they can break into international markets much faster by buying players in their sector. International studies show that companies seeking growth through acquisitions tend to do better than those that do not. Any growth company should look upon acquisitions as a strategic option.
Perhaps the best option of all is to buy a company before another one buys you.
Read more about our study
- The acquisition of technology and knowledge-intensive companies in Finland (pdf, in Finnish)
- See the story in the Finnish business publication Kauppalehti "Ulkomainen ostaja luo arvoa (A foreign buyer creates value)" (25 February 2016, in Finnish)