YOU WANT TO BUY A BUSINESS AND NEED FINANCING!
HOW TO FINANCE A BUSINESS ACQUISITION / HOW COMPANY ACQUISITIONS WORK
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
CONTACT:
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Company acquisition financing methods & options are how Canadian business owners/mgrs complete the pursuit of the desired business purchase. Things go awry when the right expertise and finance terms are not achieved. What are essential points and strategies to complete buying a company? Let's dig in.
WHAT IS A COMPANY ACQUISITION?
A business acquisition is the purchase of all or a majority of a company's shares for control. Buyers pursue acquisitions to improve the performance and profits of the target firm, consolidating capacity, accelerating growth or acquiring certain assets and technologies, and achieving scale and growth.
WHY DO PURCHASERS OF COMPANY'S MISTAKE VALUE
When it comes to ' why do companies make acquisitions, ' one of the larger mistakes purchasers make is to focus solely on the 'price/value' of the target company you are looking at. The reality is that financial statements that accountants prepare never are intended to figure out the ' value ' ' price ' of the company. (They do, however, hopefully, reflect the profits and assets of the business) Proper due diligence on the balance sheet is key. In some cases, a third-party appraisal will be required and is beneficial for buyers, lenders, and sellers over the long term.
HOW DO LARGER CORPORATIONS FINANCE ACQUISITIONS?
Successfully getting financing approved and in place to purchase a business is a well-known challenge. Larger corporations, of course, use the capital markets, stock sways, the deep pockets of public 'cash-rich companies, or Private Equity firms to facilitate a transaction. The SME sector demands a lot more creativity but still offers some solid options for achieving your goal. Private company acquisitions offer a significant challenge for buyers without additional help and expertise in completing a deal.
Nevertheless, cash flow financing is always a key part of any business acquisition. It is rare and to do entire cash transactions in the SME/SMB marketplace. Buyers should also keep in mind that a growth strategy should also be considered at the time of purchase, necessitating additional financing needs post-acquisition.
Even the government of Canada acknowledges that entrepreneurship in Canada is at an all-time high - for more info, click here.
YOUR COMPANY ACQUISITION CHECKLIST FOR FINANCING CAPITAL REQUIREMENTS
The key options in business acquisitions to finance your business purchase will probably include one or more of the following and arm you with vital insights into completing your transaction -
Bank Loans - Term loans and revolving facilities
The Govt of Canada Guaranteed Small Business Loan - (The ' SBL ‘) SME commercial financing acquisitions under 350k - The interest rate and terms and conditions are desirable under the Canada Small Business Financing Program.
Asset-based Loans & Lines of Credit - ideal for leveraged buyout scenarios and focusing on the asset base and sales revenues given that leveraged buyouts are asset focused
Unsecured Cash Flow Loans -
Vendor / Seller Participation in the Transaction - The seller note/seller financing or earnout is a key part of any transaction that reduces the amount of equity financing/ debt finance needed - For more information on ways to finance via earnouts as a part of your financing structure click here
Mezzanine financing, which typically also comes with a small equity participation request - ( quasi debt)
FINANCING FUTURE ASSET AND CASH FLOW NEEDS
In many cases, strategies that include equipment financing and leasebacks and A/R finance may well round out a transaction regarding company acquisitions and mergers. Cash reserves should always be top of mind for the buyer, ensuring that changes in those reserves will require additional financing for balance sheets. Your financing should ensure they align with your goals around the business deal.
Don't forget that almost all lenders will desire some level of owner equity participation in almost all instances. All debt financing essentially is not available in Canada, much to the chagrin of many buyers who wish to avoid or limit the ' equity portion / down payment ' cash payment part of a transaction.
DO CANADIAN BANKS FINANCE ACQUISITIONS?
While Canadian chartered banks, of course, facilitate financing acquisitions via bank loan solutions, their lending criteria have been modified and somewhat tightened since the global 2008 financial collapse. And let's not even discuss company acquisitions during Covid and the Pandemic of 2020 re Covid 19! when it comes to the challenge of company acquisitions today. Interest rates on bank acquisition loans are, of course, the lowest in Canada at a time when rates are at an all-time low in the economy.
A solid business plan is almost always required in acquisitions and brings a fresh perspective to your transaction if done well - 7 Park Avenue Financial business plans meet and exceed banks and commercial lenders' requirements.
WHAT ARE THE KEY ISSUES IN BUSINESS ACQUISITION
The key issues in business acquisition and business purchase finance? They are profits, cash flows, assets, and debt levels. Those 4 criteria will determine the amount and type of financing you need and the company acquisition process you should follow around a proper capital structure.
In some cases, real estate might be a part of your transaction, and that might separate from the operating company/parent company.
CONCLUSION - YOUR ACQUISITION DEAL
Your ability to successfully buy an existing company will come down to the amount of time and expertise you have and ensuring you have explored the right financing options. This is the time for expert and useful advice.
Speak to 7 Park Avenue Financial, a trusted, credible, and experienced Canadian business financing advisor who can help you complete your business purchase and help finance the acquisition of another company in the m&a financing world with merger and acquisition financing options that make sense for your transaction.
Click here for the business finance track record of 7 Park Avenue Financial.
