"Small businesses that don't grow are doomed to fail, while those that want to grow represent the future of the Italian economy". With these words Professor Maurizio Dallocchio, from the Bocconi Department of Finance and coordinator of the research at CReSV Bocconi, Research Center on Sustainability and Value, carried out in collaboration with Ernst&Young, closed his speech, analyzing the positive returns for companies following of external growth operations, specifically through M&A operations.
Small is not beautiful, as is sometimes claimed, quite the opposite. And the data proves it once again: micro-enterprises represent almost 95% of the entrepreneurial fabric in Italy, against 91,8% of the European average, but above all it is evident that while in the EU employment in these companies is 29,7% of the total and the added value is 21%, in the boot 47% and 32,6% travel.
Too high figures, which once again testify to a dwarfism syndrome, which also affects a fundamental sector such as exports: micro-enterprises export an average of 29%, while companies with more than 250 employees do much more. And it is no coincidence that Slovakia, which is the European country with the largest average size of its companies, is also the one that has seen the greatest growth in percentage terms per capita wealth from 2000 to 2011, while Italy is the only industrialized nation with a negative sign.
We are always smaller and poorer, so why don't we grow. Another one stands out among the research data: in 2001 Italy contributed 3% to corporate finance operations (quotations, mergers, and above all acquisitions) worldwide, while in 2011 only 1%. However, the research also analyzed some encouraging aspects: the improvements in company performance following mergers and acquisitions are in fact increasingly obtained thanks to the synergies achieved. And positive synergies are mainly achieved at a strategic level while financial synergies have a residual role.
The study analyzed a sample of nearly 100 M&A deals, carried out by Italian purchasing companies in Europe in the period 2003-2008, and assessed the existence of positive returns by evaluating the synergies. As we wanted to demonstrate, 74% of the transactions analyzed were carried out by small and medium enterprises and 58% of the transactions had a realization value between 0 and 25 million euro.
However, the results that emerged show that companies that have carried out M&A operations have been able to obtain total synergies on average positive. In particular, operating synergies constitute the most significant component, responsible for 84% of the synergies obtained, and are mainly attributable to savings in operating investments, 58%, and for the remaining 42% to the EBIT component, thanks to the increase in sales. In fact, the comparison between the average pre- and post-operation sales shows an increase of 26%. The financial component, on the other hand, is less decisive in generating synergies.
The CReSV also carried out a focus group with the financial directors of important Italian listed companies, from which it emerged that the ability to achieve financial synergies is strongly correlated with the generation of internal resources within the company and with capital procurement methodologies. Companies that have a high level of self-financing in the three years preceding the extraordinary finance operation will in fact be able to generate greater financial synergies, thanks above all to the ability to finance the M&A operation at more advantageous conditions.
An analysis by nationality also illustrates that the M&A activities carried out between Italian companies have shown better results than those carried out on the European scene. Moving on to sectoral assessments, the results show that on average there are no major variations between the results obtained from operations carried out by companies belonging to the same sector and those from different sectors.
"In the light of the results, and what emerged during the meetings with the financial directors, we have outlined the determinants on which to focus in order to obtain positive results through mergers and acquisitions - he explained again Maurice Dallocchio -. In the first place, it is necessary to pursue operational strategies focused on increasing domestic and foreign market shares, in order to increase sales and generate revenue synergies. It is also necessary to increase the ROS (return on sales), being careful not to generate operational dissynergies and to increase the efficiency of operational investments. Finally, it is advisable to implement strategies to improve cash flow generation to have access to less expensive financing methodologies.”
“The results obtained confirm the role of finance as a tool for an efficient allocation of resources but not as a source of value in itself. In other words, finance is an amplifier of the wealth generated but only when it is instrumental to sustainable and long-term corporate strategies.”, instead commented Donato Iacovone, Mediterranean Managing Partner and Chief Executive Officer of Ernst & Young.
