M&A Imagineer: The “Zig-Zag” Strategy
Navigating the conflicting geopolitical headwinds of a relatively small cabal of oligarchs and their commercial entities with undue influence over policy direction in the name of “national interest” (really code for self-interest) is precarious to say the least for your typical SME and MME.? Individually you may have a “vote” and find some sort of solace in it…but ultimately the power of (howsoever defined) “money” talks.
So if you own, operate, manage or invest in SMEs and MMEs how do you mitigate perceived and actual geopolitical risk?? One way may be to follow some sort of “zig-zag” M&A strategy or your own version of it?
Assuming that your existing enterprise is your “Platform” core business: carefully analyse in which countries your customers are currently based; identify which are similar overseas markets to your present client profile; look for other like countries in which you could potentially trade; then see further afield to “growth” or frontier markets that are likely to mature over the medium to long-term; and build upon this.
In practical terms, using M&A and by way of example only, a medium-sized UK engineering firm acquires a similar US company (because more and more contracts are originating and being completed for clients located in that market); it then takes the strategic decision to buy a complementary Canadian company (of a similar size) because it wishes to gradually enter the market there; after some initial integration and consolidation the UK company realises that production is gradually expanding in Mexico, being a growth market it feels that an equivalent investment (to that in Canada) would actually enable them to acquire a slightly larger engineering firm, manufacturing much larger components; because the Mexican company has close commercial ties with a South African blue chip (with significant signed infrastructure projects over the next two decades) so the UK firm decides to acquire an Indian subsidiary of a conglomerate based in Durban, South Africa – being one of the selected partners to deliver part of the infrastructure project; this process repeats gradually across continents and legal jurisdictions but with no subsidiary accounting for more than 5%-10% of the Group’s combined turnover and profits.
Over time, more and more investments are made in actual growth markets and less and less in mature markets (because of market saturation and long-term projected market decline).
Each country will have its own unique way of conducting business, and business etiquette – some may not appeal to or resonate with you?
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Where your business purely caters for the domestic market you may continue to remain vulnerable to the various geopolitical headwinds; in which case you could explore different regions and other business sectors to slightly mitigate risk?
The reference to acquisition is for convenience only; it may be preferable, in some markets, to have collaboration agreements and to (selectively) enter into JVs?
This is not a panacea, the World is always in flux, uncertainty is the norm – but a little forward planning may help just a little… because remember “no-one expects the Spanish Inquisition!” (Monty Python).
?
Kip
The EBO Guy
…Acquiring businesses for employees