Capitalising on legacy: the power of M&A to elevate family-run enterprises
Raghu Marwah & Anmol Bansal
by Raghu Marwah & Anmol Bansal
In the realm of business, family-run enterprises occupy a unique space where tradition and innovation co-exist in the form of trust and integrity. The question of expansion often arises as these businesses mature. How can they grow while retaining their distinct heritage and values? The answer lies in the strategic use of mergers and acquisitions (M&A), an extensively used tool that enables family-owned firms to scale up effectively while preserving their core identity.
Anchored in robust research and fortified by real-world case studies, the narrative of family businesses scaling new heights through strategic M&A unfolds as a pivotal chapter in their legacy.
A dive into the data repositories reveals compelling trends: M&A activity often bolsters the market presence of family-owned conglomerates, propelling them from regional dominion to global prominence. For example, Tata Group's strategic acquisition of Jaguar Land Rover not only facilitated its foray into international markets but also marked its entry into the luxury automobile sector; while Reliance Industries' M&A endeavours – bringing international brands like Hamley’s to India, and acquiring legacy brands like Campa Cola – have propelled it to become one of the largest conglomerates in India. These ventures exemplify how M&A offers family-run businesses a passport to uncharted territories, diversifying revenue streams and reducing dependency on a single market.
Research underscores that M&A is not just about numbers; it's a pivot point for generational transitions and organisational rejuvenation. By integrating fresh leadership perspectives and injecting innovation, family-run businesses can bridge the generational divide while navigating the complexities of modern markets. This is evidenced in the case of Reliance Industries, where the Mukesh Ambani-led, petrochemicals conglomerate is now invigorating its revenue streams through a focus on emerging industries, and has seamlessly accommodated generational shifts in leadership.
The financial facets of M&A mirror its strategic prowess. An analysis of past data reveals that well-executed M&A often leads to enhanced financial performance and improved competitiveness. This phenomenon aligns with studies showing that family-run enterprises engaging in M&A outperform counterparts that refrain from such strategic moves. The financial augmentation achieved through M&A serves as a testament to the wisdom of leveraging external synergies to bolster internal strengths.
Critically, the synergy between research insights and real-world exemplars emphasises that M&A is not merely a tactical decision but a strategic imperative. "Family Ownership and Acquisition Behavior in Publicly-Traded Companies", a study by Miller et al. (2010) published in Strategic Management Journal, investigated the relationship between family ownership and acquisition behaviour in publicly-traded firms. Their findings indicated that family ownership positively influenced acquisition outcomes, and suggested that family-run businesses were more effective in utilising M&A as a growth strategy.
In conclusion, the strategic use of M&A offers family-run businesses an avenue to propel growth while preserving their cherished heritage. Backed by industry examples and research findings, M&A emerges as a dynamic strategy that empowers these enterprises to expand into new horizons, foster innovation, and secure their legacy for generations to come.
Raghu Marwah, a qualified Chartered Accountant with a Bachelor of Arts (Economics), joined the RNM team after having gained experience at one of the Big 4 firms. He specialises in advising and rendering consultancy services to clients in relation to structuring strategic investments, offshore structuring, cross-border holdings, M&A, and valuations. Contact Raghu.
Anmol Bansal, with a BSc (Hons) in Accounting & Finance from University of London, is an Analyst with RNM Capital. He works with startups, incubation centers and family offices in various areas like strategic investments, valuations, M&A and cross-border transactions. Contact Anmol.
Established in 2009, RNM Capital Advisors (RNM) is a mid-market focused boutique investment banking firm. RNM provides advisory services to its clients across sectors and geographies in the area of mergers & acquisitions, joint ventures/collaborations, fund mobilisation, restructuring & turnaround, valuations, due diligence, India entry, family office, alternative investments and other allied corporate finance matters.
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