Small-cap strategies for growth in the M&A market

In 2023, the M&A market faced notable challenges, with global deal value dropping by 15%, reflecting the impact of high interest rates and geopolitical tensions. Another important consideration is growing antitrust scrutiny. According to Allen & Overy, prohibited transactions rose by 50% in 2023 across 26 jurisdictions, focused particularly on the US, EU, UK, and APAC regions.

In response to this challenging environment, companies can pivot towards smaller acquisitions as a strategic alternative. Our research on the IT Services sector in Europe reveals a significant discount at which small-cap stocks trade compared to their larger counterparts. Pursuing smaller deals may offer accretive benefits and operational synergies, providing a compelling opportunity amidst regulatory constraints.

Another avenue worth exploring is the potential for smaller companies to merge with each other, forming larger combined businesses with the aim of garnering more attention from public market investors. Such mergers could be structured as share-for-share deals, minimising cash outlay and maximising synergistic potential. This strategic move not only consolidates resources but could enhance market visibility. 

In navigating the complexities of the current M&A landscape, companies must adapt strategies to address regulatory challenges while seizing opportunities aligned with their business objectives. It is important to find companies of the right fit, fostering genuine synergies that drive sustainable growth.

#CorporateFinance #SmallCap #MergersandAcquisitions