Purbeck Warns SMEs to Boost Due Diligence Amid Rising M&A Failures
Recent research from Purbeck Insurance Services highlights a significant increase in business failures stemming from mergers and acquisitions (M&A) within small and medium-sized enterprises (SMEs). In 2024, 33% of Personal Guarantee Insurance (PGI) claims were linked to unsuccessful mergers or acquisitions, underscoring the risks involved in these transactions. The M&A market remains active, buoyed by favorable economic conditions including lower interest rates and GDP growth, driving both inward and outward deal activity to levels not seen since 2022.
Purbeck advises SME owners to enhance the rigor of their due diligence processes before engaging in M&A activities. The complexity of due diligence can present challenges for smaller businesses, but thorough financial, legal, and operational evaluations are critical to uncover potential issues and ensure a smooth integration. Business owners are encouraged to engage trusted professionals such as accountants and legal advisors to assist in this process.
Additionally, beyond the financial and legal checks, assessing the cultural compatibility and operational systems of the target firm is vital. This holistic approach helps mitigate post-acquisition disruptions and operational inefficiencies. Purbeck notes that some businesses may present an overly favorable picture prior to sale, making robust scrutiny more necessary.
On the insurance front, PGI plays an essential role for SME directors involved in M&A by protecting their personal assets if the acquired business fails and the lender seeks redress. This insurance coverage not only safeguards personal finances but also facilitates securing the necessary financing to complete acquisitions.
Overall, the outlook for UK M&A activity remains positive, with economic and political factors supporting continued growth. However, careful preparation and risk management strategies, including enhanced due diligence and appropriate insurance coverage, are emphasized as key elements for successful M&A transactions by SMEs.