How Three Small Businesses Are Growing By Acquisition

Acquisitions are proving popular with SMEs

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Acquiring a new company can be a major milestone for small and medium-sized enterprises (SMEs) in terms of rapid growth, diversification, and greater market reach. Once the preserve of large organizations, this space now offers a wealth of opportunities for SMEs, as they realize the value of growing by acquisition.

The 2023 Marktlink Monitor, revealed that nearly half (47%) of business owners had considered buying another business in the past year, and of these, 64% were planning to do so in the next five years.

Eamonn Turley CEO of MPV Rentals has over a decade of experience in advising small and medium-sized enterprises (SMEs) on strategic acquisitions and says several important benefits can materialize, including greater market share.

“Acquiring another business can rapidly expand a company’s market presence and customer base, enabling greater competitive advantage,” he says. “Acquisitions can provide immediate access to new technologies, products, or skilled personnel that may take much time to develop in-house. Merger operations will also help reduce costs per unit because of higher production levels. This is usually associated with increased profit margins.”

However, as Ashot Nanayan, founder and CEO of marketing agency DWI, explains, there are also challenges that must be navigated with caution. He says, “Integrating teams, technologies, and workflows can be complex and time-consuming, potentially disrupting day-to-day operations, while cultural misalignment can lead to disengaged employees and erode the value of the acquisition.”

Here are three SMEs that have successfully harnessed growth by acquisition.

Boosting brand position

Lower Street was founded by CEO Harry Morton after he spotted a huge opportunity in podcasting. He used his previous experience working with brands to launch the business from his apartment in Peckham, London in 2017. In July last year, he bought Canadian podcast producer Pacific Content, a move that he believed add would add value in terms of their positioning and brand perception within the market.

“Pacific Content was the first and highest-profile branded podcast agency in the world, synonymous with the biggest brands and shows,” says Morton. “Lower Street came in as a challenger brand and I like to think we’ve done a good job of helping to shape the development of the podcasting space. The acquisition has allowed us to position ourselves as true leaders, and as the market develops and matures, actively participate in its growth.”

Morton retained a lot of cash in the business for exactly these kinds of opportunities and was able to fund the deal entirely by himself. One of the challenges for small companies, however, is deciding what to reinvest in growth on an ongoing basis, and what to set aside for opportunities of this nature.

He says: “With a finite amount of capital to allocate to these deals, determining which will add the most value to the business can be difficult. On the other hand, our advantage is that when we decide to pursue something we can move very quickly, and the deals can be extremely impactful. This deal was done in a matter of weeks, which allowed us to announce and integrate very fast, seeing the benefits and ROI sooner.”

Strength in numbers

Stem cell startup Axol Bioscience was founded in 2012 after Dr Yichen Shi spun the induced pluripotent stem cells (iPSC) technology out of Cambridge University with the support of his cofounder Jonathan Milner. In 2022, the company reverse merged into Censo Biotechnology, based in Scotland, and last October acquired French business Phenocell SAS.

CEO Liam Taylor says: “Both acquisitions have focused on increasing scientific capability and competence within our key disease areas, complementing existing products and service offerings, driven by customer demand and fit.”

He explains that the main way the Phenocell acquisition adds value is that they had developed a best-in-class, high-throughput iPSC disease model for dry AMD retinal disease, which can be further exploited with the addition of Axol Bioscience neural iPSC cell types.

A combination of the two strengths will drive better human disease modelling in the neurodegenerative drug discovery space. But there are potential pitfalls as Taylor points out.

He says: “It doesn’t matter if you’re acquiring a £1 million valued business or a £20 million valued business, the same level of diligence, legal drafting and post-acquisition integration apply. However, the target business might not have the relevant experience and infrastructure in place, and this can slow the process down.

“More concerning is that it can suck time away from the day-to-day running of the business and impact performance post-acquisition as the business often relies on key individuals for the science, marketing, business development and customer relationships.”

The deal was structured with a cash component upfront funded by an internal equity round, and two milestone payments tied to swift integration of business and revenue plan delivery, with one milestone for cash and the other, equity in Axol Bioscience. “This ensured the seller is tied in post-acquisition and has ‘skin in the game’ to guarantee alignment on key risks post-acquisition,” adds Taylor.

The integration plan is currently in phase two, with a focus on commercial integration, namely customer interaction and sales funnel buildup, as well as product transfer to drive cost efficiencies, quality improvement and release service capacity for growth.

Diversifying talent and creativity

Music startup Enchant Group was founded in 2024 by Daniel Jackson, a veteran of the media-music industry, who wasted no time in making two acquisitions: Sonicbrand, which specializes in the creation and management of sound identities, and Resister two months later.

“Resister’s credits include Barbie, The Batman and Lego Friends which gives us world-class capabilities in music supervision for movies, games, TV and advertising,” says Jackson. “They’ve also assembled an impressive roster of female talent which has, to date, been woefully under-represented in the industry. New talent brings exciting new creativity, which is the source of all our success.”

One advantage of buying a small company is that communication is directly between the founders or owners, helping to ensure that their motivations are aligned with those of the acquirer.

“It’s also an advantage that the ticket price for a smaller company is naturally more affordable, and there are not too many acquirers at the sub £1m EBIT level, so it’s quite a clear field,” says Jackson. “Most larger acquirers don’t want to take the risk; you need domain expertise on the acquisition team to even think about getting involved, so that’s part of the fun. We are uncovering gems that few other people can find.”

Resister is one of the bigger U.K. players in the industry, so completing the acquisition gave Enchant a strong footprint in the music supervision space. So far both Resister and Sonicbrand are achieving growth as a result of cooperation on sales and marketing, as well as efficiencies through sharing back-office functions.

Growing by acquisition looks set to be the way forward for Jackson. He says: “This is a highly fragmented space, but we see Resister as a strong proof of concept that can provide real value to the owner/operators of small businesses in our space. This enabled us to complete a third acquisition in 2024, WMP Studios, a Yorkshire-based music composition business, with a pipeline of deals for 2025, including our first European and MENA acquisitions.”

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