Raising finance for an acquisition

A top priority among all who are looking to buy a business should be to endeavour to leverage the acquisition without delay. Essentially, a smart business purchaser will try to obtain a controlling share in their target company while dispensing with as little as possible from their own pocket. The raising of sufficient finance, however, has always been one of the most testing tasks facing a business buyer, but - while it does cause a great deal of purchasers to fall at early hurdles - it is far from an impossible task. With some knowledge, prior preparation and a realistic business plan, the challenge of raising the finance for an acquisition can easily be kept manageable and realistic.

So where to start? Commercial loans can offer one of the most stable and effective methods of funding a purchase, with competitive rates and readily flexible payment schedules. These can, in some circumstances, allow the purchaser to pay up to 75 per cent of the price of the company, with a 15 to 20-year payment plan. It should be known that it is uncommon to get commercial loans without collateral these days.

Secured loans from banks, building societies or finance companies can provide a purchaser with up to £250,000 for a deal - often large enough to secure that majority stake. Some credit card deals can also be relied upon for viable funds, especially those that offer 0 per cent balance transfers and free credit periods.

In some cases there may be no option but to finance the deal from your own back pocket. Personal funds lie behind a greater number of business transactions than are commonly known, but they can provide the purchaser with greatly minimised risk and limited obligations to other business parties. Personal cash savings can often offer a lump sum, while the benevolence of loans from family members or friends could also be sought, with the evidence of a solid business plan and a strong idea. The power of immediately available liquid funds in terms of being able to secure a discount off the sale price cannot be understated.

Allying with business partners can open up a range of financing options, as well as affording a buyer some insight in to the partner's own business knowledge and acumen. The first person that should be considered as a business partner is the existing owner of a target business, who can provide experience and goodwill to a deal through a minority equity stake, while still going through with their aim of offloading the day-to-day running of the business. Hounding the owners to see whether this may be an option is certainly not unheard of and may well open up an opportunity they may not have previously considered.

If the owner is not interested, then perhaps the employees might be - it could well interest them to own part of the business for which they work. Even looking to suppliers or customers could uncover some potential pots of financing from people who have a vested interest in keeping the company in good business.

Sourcing funding privately from the business vendor has become one of the most common routes for financing the acquisition over the past few years. First, in doing this, is to negotiate the amount of up-front cash payable and to carefully structure as long an earn-out period as possible. This will require careful arrangement and an agreement between both sides - in terms of the time frame, the amount of deferred consideration, etc. - but can be lucrative and efficient.

If the company has a bank loan, then increasing that can afford the buyer cash post-purchase, as can increasing any loan on the buyer's own company, if there is one. Modern short-term financing tactics such as mezzanine finance deals or factoring the company's creditors can also expose capital to keep the company going after the purchase.

The physical assets of a company can also contain valuable equity and, if they are serving no other benefit or are being noticeably underused, can be sold on for what they are worth. This also goes for surplus or obsolete stock, unused office space and high-value assets or equipment that can be sold and leased back. Subletting unused office space is a source of finance, as is letting or selling on any unused, valuable parking spaces. Intellectual property can be capitalised on just as much as physical property, and the company should be examined for any idle trademarks that could be sold on or granted as licenses.

As with most other aspects of carrying out a successful business acquisition, the help of experienced professionals can alleviate the pressures that can fall on a buyer who attempts to go it alone. Financial advisers can extend the range of deal structure options available to the buyer and help pinpoint those that are the most appropriate. Advisers can help handle such moves as approaching company suppliers to negotiate longer payment terms and can help with obtaining finance from the seller, as well as postponing the initial business purchase payment for as long a period as possible.

It is crucial to make sure that the majority of the funding for a deal is in place before negotiations begin, as having to admit that the funds are simply not there is likely to result in disaster. Managing that, however, should not be beyond the grasp of the savvy business buyer and can drive a successful business acquisition through to a profitable conclusion.


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