Beyond the union: Understanding the complexities and impacts of M&As

The Year 2023 is fast into its first quarter, and businesses around the world are keeping close tabs on their performance as the global economy weathers high inflation and an impending recession.

The reality is even starker for local SMEs in cosmopolitan Singapore, where they are more vulnerable to global economic fluctuations.  Every business decision made holds much more weight in the future of the company as more SMEs in Singapore look to expand into overseas markets to scale operations while searching for cost efficiencies.

Singapore SMEs received the news in the nation’s Budget 2023 that this year’s focus would be on talent building and seizing new opportunities amid the heightened global uncertainty. This comes in line with the merger and acquisition objectives of Japanese companies looking to expand their business overseas, driven by the search for more cost-efficient production channels, new markets for expansion or diversification of revenue and cross-cultural management capabilities.

For Singapore SMEs, Japanese investors offer great benefits as the interests of both parties are aligned with the focus on growth in ASEAN. At the same time, for a Singapore company looking to enter the Japanese market, being backed up by a Japanese company will position itself in the trusted keiretsu network. The Japanese word “keiretsu”, which means “group”, describes a strategy that encompasses mutually beneficial relationships among independent companies through shared goals that provide a level of trust.

A gateway to shared values and synergistic fit

With the increase in Japanese companies looking to diversify their business through investments in ASEAN, Singapore is primed as the gateway to ASEAN in the post-pandemic era. This is even more so in recent years, with Japanese tech firms expanding via Singapore.

Also Read: What businesses should take note of before taking the M&A leap

Japanese companies look to Singapore companies as esteemed long-term business partners, placing high importance on having a cultural fit often beyond typical synergies in M&A. By “cultural fit”, we mean that instead of just integrating two different cultures into one, Japanese companies tend to look for the assimilation and accommodation of their Singaporean partners’ company culture.

This provides local SMEs with a greater sense of stability and assurance that their corporate culture is appreciated. Both parties would be committed to the growth of their businesses while preserving their respective company culture. Thus, setting the stage for a successful M&A.

The emotional strings that come with M&A

M&A is more than a marriage. More often than not, M&A between organisations involves more stakeholders and impacts more people than a marriage between two families. The risks run higher, and failure can arguably be more detrimental.

Many Singapore SMEs are family or founder-led businesses where the M&A process is very much an emotional journey vis-à-vis a transaction one. Such transactions have the same challenges as any M&A transaction, with the added complexity of the family’s or founder’s strong attachment to the business.

Being a once-in-a-lifetime transaction, the financial dependency of the owners’ wealth in their business and the strong emotional bond with the business are distinct characteristics of these transactions.

A founder-led business itself with over 30 years of history, the track record of Nihon M&A Center is built upon its expertise in intermediary services in mergers and acquisitions, serving as a link between companies to bring about the agreement in fulfilling the intended outcomes of each transaction.

Preserving corporate identity, observing respect for autonomy, and maintaining the status quo of an acquired company are prioritised by the firm’s network of Japanese investors.

This means that the management team of acquired companies retain significant control of the business and maintains their unique identity and culture, with the support of the Japanese parent company for their business plan post-transaction.

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