Funds, SMBs, risks: the aspects to clarify about mergermania

Funds, SMBs, risks: the aspects to clarify about mergemania

Experts are sure that even during 2023 M&A activities will continue on the strong trend. And Italy, fundamental country for the fashion industry, will once again be a main actor in the various plays. Mergermania, the current trend of M&A operations on all levels of the chain, requires two main clarifications. The first is tied to the goals of active players: fashion conglomerates on one end, and PE funds on the other. The second is tied to the critical aspects of the situation. Because it’s true to that M&A operations should be beneficial to all: those that make the purchase, those that need more control over their supply chain to ensure timeliness and synergies. And for those that make the sale, as they can access financial tools that give investment opportunities that would otherwise not be possible. But the fact that all operations are successful isn’t a sure thing.

The first aspect of mergermania

Fashion groups and funds, if one looks carefully, aren’t competitors. They appear to be closing the same operations, but they do so with different objectives. Groups want to create vertical value, while PE funds execute the “buy and build” strategy. The concept was explained by Stefano Cervo, partner at KPMG, to Reuters: “For a large brand it makes sense to make an acquisition of, for example, a tannery specialized in tanning rare hides – he says -. It’s hard to think why the same large brand should be interested in purchasing a company specialized in crafting metal accessories such as chains of buttons”. Simply put, conglomerates by suppliers with high added value (also to ensure continuity), while funds acquire small SMBs with solid fundamentals and good forecasts.

The second

Of course, a deal represents an advantage for both parties involved. But it’s not a sure thing that every deal is a success: something can go wrong. Such as? The integration process of small SMBs in large holdings can suffer from a “rejection crisis”. “There can be cultural issues tied to governance – says to Vogue Business Conor Cahill, head of consumer products at Deloitte for Northern and Southern Europe -. Going from the relation supplier-client to that of subsidiary-HQ, with the various complications that are derived, can generate conflict”. The risk is that the SMB’s personnel decide to leave the company. And in doing so emptying the business of competencies and know-how and leaving the purchasing group with a company that no longer possesses added value.

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