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Utilising M&A to Grow
Mergers and Acquisitions (M&A) among Indian MSMEs are emerging as a strategic tool for scaling operations, pooling capabilities, and enhancing global competitiveness. While traditionally underutilised in the MSME segment, M&A activity is gaining momentum, driven by market consolidation, digital platforms, and the increasing pressure to meet global supply standards.
Why M&A Matters for MSMEs
Challenge Faced by Individual MSMEs | How M&A Helps |
|---|---|
Small production capacity | Combines plants, equipment, and labour resources |
Limited market access | Unifies distribution networks and customer bases |
Financial constraints | Increases creditworthiness and investor confidence |
Lack of export readiness | Brings complementary export licenses, certifications, and compliance systems |
Technology and R&D gaps | Acquires or merges with firms having technological strength |
Inability to service large export orders | Becomes part of a larger unified entity capable of handling scale |
Benefits of M&A for Export-Oriented Growth
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Post-merger entities can invest in bulk production and meet high-volume export orders.
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Economies of scale reduce unit costs, making pricing globally competitive.
Increased Scale and Capacity
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Combined balance sheets improve eligibility for large working capital loans, project finance, and export credit insurance.
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Higher creditworthiness also improves access to private equity or venture capital.
Improved Financial Strength
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Acquiring or merging with an export-ready enterprise opens access to new geographies, distributors, and customer segments.
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Reduces time-to-market and reliance on intermediaries.
Access to New Markets
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M&A allows MSMEs to offer broader solutions (e.g., combining hardware and software, or multi-line manufacturing).
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Shared R&D capabilities lead to product innovation tailored to international needs.
Enhanced Product Portfolio and Innovation
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Eliminates duplication in procurement, HR, logistics, and compliance.
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Streamlines costs and improves productivity.
Operational Efficiency
Real-world Use Cases
Industry | How M&A Helped |
|---|---|
Textiles & Apparel | Two regional garment MSMEs merged to service a European fast-fashion buyer requiring bulk seasonal deliveries. |
Engineering Goods | Precision component firms in Pune formed a consortium through M&A to meet U.S. automotive export standards. |
Ayurveda & Pharma | Herbal product firms combined product lines and certifications (GMP, ISO) to target health stores in the Middle East. |
IT & SaaS | Two MSMEs merged to offer full-stack digital services to global clients - web development + AI analytics. |
Policy and Regulatory Support
Insolvency & Bankruptcy Code (IBC)
Facilitates faster M&A of stressed MSMEs
RBI Guidelines
Guidelines on bank lending to merged MSME units recognise the new entity as one combined borrower for PSL limits.
Startup India & DPIIT
Such incentives are also extended to eligible merged units (subject to conditions).
MSME Samadhaan Portal
Supports faster dispute resolution and payments, improving post-merger liquidity.
Recommendations for MSMEs Considering M&A
Conduct Strategic Fit Analysis
Use Professional Valuation Services
Plan Integration Carefully
Seek Legal & Regulatory Advice
Leverage Cluster Platforms
Conclusion
M&A among MSMEs is a powerful lever to move from fragmented small-scale operations to globally relevant enterprises. By combining resources, capacity, and vision, merged MSMEs can pursue large-scale international sales contracts and become serious players in the global value chain. Policymakers, lenders, and industry platforms must encourage and facilitate such collaborations as part of India’s broader export strategy.
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