With access to finance remaining a significant challenge to business growth, capital markets are increasingly being seen as a vital pathway to secure funding for their growth and operations.

This is particularly true for smaller and medium enterprises, considered in many economies, including Malta, as the driving force behind innovation and job creation.  These businesses need funding at various stages of their growth journey, starting from initial capital during start-up and continuing with investment for expansion during their development phase.

Due to their limited scale, SMEs traditionally depend on bank loans. Nonetheless, since the global financial crisis, this funding avenue has become more costly and challenging to attain. This poses a risk which could stifle SME growth and hinder economic progress. To overcome this, SMEs can opt for alternative funding routes such as issuing equity and debt securities in the capital markets. This gives space for growth, and opens up increased options, including for mergers and acquisition.

“There are many benefits that an acquisition can bring to a company that has the ambition to grow and diversify and M&A activity can be a catalyst in fuelling SME growth and the right opportunity could enable geographical expansion, provide access to new customers and product lines and tap into new team expertise,” said Archie Bethel, CBE, chairman of Hili Ventures. “On the cost side, benefiting from wider supply chain options and increased trading activity can also contribute to maintaining competitiveness,” he added.

Bethel was one of the high-profile speakers at Calamatta Cuschieri Moneybase’s Capital Markets seminar hosted earlier this month. In his address, Bethel warned that although M&As are generally an option to consider, SMEs must be sure that they plan strategically for this move.

“In my view, there are three elements which underpin a successful M&A transaction. First and foremost, an acquisition needs to be a strong strategic fit, such as a similar product or service in a new market with an untapped customer base; or a compatible product or service which would enhance an existing product line or service portfolio.”

“The second key factor is cultural fit and shared values are important and will be crucial in bringing the two businesses together, effectively. Finally, a great deal of due diligence needs to be carried out, to be sure that the business is creating value in a way that can be fully understood and realized.”

Ultimately, an acquisition is only successful when paying the right price and without these three elements, the danger of overpaying for the business or the risk of not delivering the assumed return on investment, in terms of financial and operational benefits, will soon become a stark reality,” he added.

Nick Calamatta, Co-CEO of Calamatta Cuschieri Moneybase, explained how public participation enhances a firm’s visibility and credibility in the market, attracting more attention from potential customers and partners.

“Public participation strengthens a company’s corporate governance and transparency, leading to greater investor confidence and creates a potential for increased valuation and growth opportunities due to improved access to capital and market recognition.”

Calamatta argued that a listed presence is a key tool in successful succession planning, thus providing a tool for increased survival of family firms. This would provide significant value added to the Maltese economy given the current situation where only a third of family-owned businesses are successfully transited to a second generation.

“Capital markets can therefore assist a company in its succession by providing access to funding for transitions such as ownership changes, mergers, acquisitions, or generational shifts. This access to capital enables smooth transitions, supports strategic initiatives, and facilitates the company’s growth and continuity during succession planning.

During the discussion, industry leaders agreed that participation in capital markets enhances a company’s visibility and being publicly listed attracts a broader investor base, including institutional investors, who may be more inclined to invest in a company with a transparent, regulated presence in the capital markets.

Calamatta emphasized the importance of firms investing in public relations to increase transparency and inform existing and potential investors, as well as the general public. This can boost enthusiasm for participating in these companies through the purchase of bonds and shares in both primary and secondary markets.