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M&As in SMEs

 

Abstract

 

The turn of the millennium unfortunately coincided with a deterioration in the business operating environment in Zimbabwe. Virtually all facets of the country’s economy have experienced hardships which translated to an unstable socio-political landscape that had a telling effect on both internal and external sources of funding for businesses. The government’s inability to rescue the situation due to capacity and other constraints naturally left the financial institutions with a somewhat sole burden to salvage struggling corporate businesses. However, these institutions were not spared either as they have become severely constrained under the weight of a debilitating economic and financial crisis. In such a harsh business operating environment, firms have either scaled down operations, or completely shut up shop and those that braved the environment resorted to survival strategies. Corporate restructuring transactions naturally gained momentum and Mergers & Acquisitions emerges as a favoured vehicle for implementing such transactions.

Even as the economic situation in Zimbabwe has relatively stabilized, corporate businesses are still struggling due to liquidity constraints. The void that was created by the collapsed big corporate entities has since been largely occupied by mainly Small and Medium size Enterprises. This form of business, as the case elsewhere has emerged, is pivotal to both economic growth and stability in Zimbabwe. Millions of people now depend on SMEs for products and services provisions. It is thus critical that SMEs be given maximum support. However, the liquidity constraints entails that funding for SMEs has been minimal with most financial institutions either reluctant or unable to extend any financial assistance to them. One of the prime reasons why most SMEs fails to attract the necessary funding is the lack of value in them, that is, their inability to produce products and services capable of competing with the influx of imports and even products and services from established firms. It is paramount for SMEs to find ways to navigate these obstacles that impact upon their ability to attract funding.

This paper largely proposes the promotion of M&As within the SME sector as a way of adding value to their products and services. This will enhance their attractiveness and their value for purposes of acquiring funding from financial institutions. The paper also makes a case for M&As as a potential game changer on the competition front in the face of an onslaught from comparatively cheap imports and products and services offered by established big corporate entities.

Author: Ignatious Nzero