BT’s acquisition of EE, a $17bn agreement to buy Hospira and Facebook’s snapping up of WhatsApp – the big deals that have grabbed the headlines over the few months as M&A deals among some of the world’s largest companies reach record heights.

Mergers and acquisitions (M&A) among SMEs naturally don’t attract the same attention –but given that around 95 per cent of UK businesses fall into this category, M&A activity at the smaller end of the scale is every bit as busy. 

Buying another business can often be a make or break move for an SME owner. Get it right and your business will instantly become bigger and, potentially, more profitable as you strip out duplicated activities and, to use that corporate buzzword, benefit from synergies. 

In fact, according to a report by KPMG called The Determinants of M&A Success, smaller acquisitions tend to have a positive impact on growth. The acquisition by £38m turnover Motorclean of a smaller rival in 2013 had such an impact – but it was hard won and required close integration with the company’s organic growth strategy. It’s also instructive for any SME owner or manager considering a merger or acquisition.

After 35 years in business, in 2010 Motorclean had become the single largest supplier of car valeting services to the UK’s 5,000 dealerships. Turnover had reached £20.5m and the management team set about finding ways to boost growth in the face of depressed market conditions.

“The team first needed to secure room for strategic manoeuvre, by conducting a secondary management buy-out with the support of a private equity partner in 2011,” explained Steve McBrierty, CEO at Motorclean. 

“As majority holder, the team would be free to consider and implement all options. In quick succession these would include the launch of a spin-out business and an acquisition, as part of an overarching strategy.”

Based in Essex, Motorclean already had in place an organic growth strategy that was premised on firstly building a reputation for quality as a differentiator in a market with low barriers to entry. It had, for example, invested in IT – becoming the first such company to develop a workflow management tool that helped it and dealerships streamline an otherwise admin-intensive process.

Second, Motorclean had introduced value-added services to increase revenues, such as Car Care Plus – which enabled dealerships to offer an enhanced (and revenue positive) valeting service to their customers. These were all good reasons for customers to sign up and stay with Motorclean.

However, the economic slowdown had severely affected the retail car market, prompting a contraction that threatened stagnation for supplier companies. “Motorclean realised that to become more resilient and to grow would require it to become a more comprehensive provider of services inside the market and to diversify outside it,” added McBrierty.

In the short term, it could turn the difficulties that market conditions were creating for struggling rivals to its advantage with an acquisition. This would provide the swiftest boost to a customer base that it could sell its expanded range of services, with the possibility of economies of scale increasing margins. 

The key new service would be premises cleaning, expanding into facilities management, delivered through the launch of a sister company called Fullfield FM. Improved margins would then allow more investment in developing the technology that it hoped would act as a spearhead into different markets. 

At least that was the theory.

“Motorclean discovered a suitable acquisition target in 2012 in the form of a privately-owned rival half its size,” said McBrierty. “The company decided to conduct the entire process with limited external help, from due diligence to the integration of operations. This was partly to save on advisory fees and partly because it was confident that its own leadership, which included senior accountancy expertise, had the necessary abilities.”

Nevertheless, Motorclean did look to its new private equity partner, Mobeus, for investment. It provided £3.2m, a renewed expression of confidence following its £6m investment in 2011, the largest it had made in a single company. Motorclean estimated that the purchase itself would be complete by November 2012. Instead, the process dragged on until February 2013. As delays in the corporate transaction marketplace go, this was not excessive but it had implications.

Read more about M&A in the UK:

• Mid-market deals are fuelling an M&A rebound
• The four hottest mid-market M&A sectors for 2014
• The ten biggest UK technology acquisitions of 2014

Post deal, Motorclean’s integration plan had envisaged a four -month time frame to accomplish the transition, including the induction and training of joining staff members, external communications with customers, mapping its operational structures onto its acquisition and switching the brand identity. However, the longest delays occurred during this phase, in part because of efforts to cause minimal disruption to established customer relationships and also because of ambitious plans to drive the newly-launched premises cleaning business.

However, the acquisition was the single largest contribution towards Motorclean nearly doubling its turnover between 2010-2014 and reaching record profits. Around 80 per cent of the acquired company’s customers were retained, meaning that Motorclean now works with over 600 dealerships. The uptake of premises cleaning services across the business is now reaching expected levels (from scratch to £2.5m annualised). Technology is currently being built as an entry into parallel markets such as refurbishment and other high volume markets, where the scales are very different.

“I think the acquisition was successful because of its marriage to an organic strategy,” McBrierty added. “That strategy has always been about creating a virtuous circle of first investing in talent and IT. Then we use the resultant growth in profits from the business we win, to fuel further growth-enhancing investment. The acquisition has provided a large boost to take us closer to our more ambitious objectives, which require more investment, faster. Having said that, our appraisal of the timescale for the acquisition process itself would be more realistic if we could do it all over again. 

“I would urge other businesses to make it the sole management focus. Whether other businesses take external advice depends on the level of expertise in-house, the process has certainly given us valuable new skills. Most significantly, a more diverse company is now galvanised behind a common vision for growth, with exceptionally high levels of staff engagement in the business.”