YOUR COMPANY IS LOOKING FOR ACQUISITION FINANCE ASSISTANCE!
BUSINESS ACQUISITION FINANCING / LEVERAGED BUYOUT LBO
You've arrived at the right address! Welcome to 7 Park Avenue Financial
Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
CONTACT US
CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs
EMAIL - sprokop@7parkavenuefinancial.com
Smart business acquisition funding strategies can transform seemingly impossible deals into achievable milestones.
From Dream to Reality: Overcoming Business Acquisition Funding Challenges
Acquiring a business requires substantial capital, yet traditional financing options often seem out of reach.
Many Canadian entrepreneurs watch perfect opportunities slip away due to funding constraints, while others struggle with complex application processes and strict qualification requirements.
However, understanding the full spectrum of business acquisition finance solutions can transform these challenges into actionable opportunities for growth.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Acquisition Financing and working capital solutions – Save time, and focus on profits and business opportunities
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
Business Acquisition Funding: Your Guide to Financing Your Acquisition
Company business mergers or acquisitions, often requiring robust acquisition finance, can sometimes go badly wrong.
What makes a financed leveraged buyout acquisition work, what are the risks, and what needs to be done right? The goal is ownership or controlling interest in the acquired company. Let’s dig in.
THE NEED FOR FINANCING IN BUSINESS ACQUISITIONS
When structuring a deal to purchase the target company, it helps when one company, the ‘buyer’, has all cash and the seller wants all cash!
Unfortunately, the planets never really align on that one. Top experts tell us that over 80% of all deals need financing to close properly, even when the acquiring company is strong and established.
Business acquisition financing is essential for closing deals, even when the acquiring company is strong and established.
The reality, and it’s often forgotten by Canadian business owners and managers contemplating a purchase of another company, is that a solid financing proposal will often get the seller a higher price.
In some cases, it might be about taking a public company private or a private equity-type transaction.
The goal is simple: acquire another business using a larger-than-normal amount of borrowed funds to meet the seller's price in a transaction.
Transactions in this deal typically involve asset-intensive firms, with those same assets being key collateral for the loan or loans.
In leveraged transactions, the relationship of debt to equity is significantly in favour of debt, allowing the acquirer to commit a lesser amount of capital to the transaction.
ALL CASH DEALS ARE NOT ALWAYS THE BEST DEAL!
Business people know that leverage is a two-edged sword. An all-cash deal often puts the purchaser at risk when things go wrong, causing the borrower significant stress!
2 KEY ISSUES IN BUSINESS ACQUISITION LOAN FINANCING
A few key issues quickly emerge in business acquisitions for the acquiring company.
Understanding how acquisition financing works is crucial for navigating the complexities of mergers and acquisitions. One is that share sales are challenging to finance, and secondly, the buyer assumes all the risk of assets and liabilities in such a deal.
Therefore, asset financing is preferred by business buyers in business purchases, especially in situations involving leveraged buyouts.
HOW CAN A BUSINESS PURCHASE BE FINANCED PROPERLY WITH ACQUISITION FINANCING
What are some typical ways a business purchase can be accomplished? One is borrowing against the inventory and receivables of the company being acquired. Typical bank margins on A/R are 75%… and inventory tends to be valued on a one-off basis depending on the nature of the asset.
It’s important to note that if you use a non-bank lender in Canada, for example, an asset-based lender, you can achieve better borrowing power on a leveraged buyout on current assets. Still, a higher interest rate will probably come with that.
It’s all about financing the balance sheet and identifying the ability to repay borrowed money with cash flows.
A business acquisition loan can be vital for securing the necessary funds to purchase a company.
Earnouts and vendor takebacks are great ways to make a deal happen. If the seller is agreeable, an installment scenario is often a key part of making the final piece of the financial puzzle work, and the seller company may thus generate a potentially higher selling price.
PRICE AND VALUATION
It’s no secret to buyers or sellers that a deal almost always comes down to price, valuation, and the differences therein!
Equity financing can significantly influence a target company's purchase price and valuation. That’s where the concept of an ‘ earn-out ‘ often works, making the deal contingent on future events.
Numerous things can often go wrong relative to losing a major customer, product issues, and financial issues such as operating losses.
Naturally, the purchase prices of a publicly traded company allow for a lot more valuation information. In contrast, the purchase price of a private firm requires significantly more due diligence on behalf of the buyer and his or her team.
4 OTHER ISSUES TO CONSIDER WHEN BUYING A COMPANY
What are some of the issues the buyer in a leveraged transaction should consider?
They include:
Sales History
When acquiring an existing business, evaluating the sales history and creditworthiness of client accounts is crucial.
The creditworthiness of client accounts receivable and inventory/market share for products and services
Asset valuation of fixed assets
IMPORTANCE OF QUALITY OF FINANCIAL RECEIVABLES AND ASSET TURNOVER IMPORTANCE OF THE TARGET COMPANY
When we meet with clients who wish to purchase a business, we quickly focus on the quality of the target company's financial statements.
Issues such as asset turnover and examination of assets that already might be financed via leasing companies are key.
Managing monthly payments is crucial to ensure the company can handle its debt obligations during acquisition.
MANAGING CASH FLOW DURING THE ACQUISITION PROCESS
Managing cash flow is critical during the acquisition process, as it can significantly impact its success.
Companies must carefully evaluate their cash flow needs and develop a comprehensive management plan during business acquisitions.
One key challenge of managing cash flow during the acquisition process is ensuring that the company has sufficient liquidity to complete the acquisition and integrate the target company.
This can be achieved by maintaining a strong cash position, managing working capital effectively, and ensuring the company can access sufficient financing options.
Effective cash flow management ensures that the acquiring company can handle the financial demands of the acquisition without jeopardizing its operational stability.
Another key challenge of managing cash flow during the acquisition process is ensuring that the company can service its debt obligations.
This can be achieved by carefully evaluating the company’s debt structure and ensuring it has sufficient cash flow to meet its debt obligations.
Proper planning and forecasting can help identify potential cash flow issues early, allowing the company to proactively address them. This approach helps maintain financial health and contributes to a smooth ownership transition and the long-term success of the acquisition.
WHERE IS THE BEST SOLID ADVICE YOU NEED TO BUY A BUSINESS
Who can give the business owner the right financing and business guidance in a leveraged deal?
Those parties include appraisers, Canadian business financing advisors such as 7 Park Avenue Financial, your lawyer, accountant, potential board of directors, respected peers, etc.
Government loans can provide the necessary financial support for acquiring a business.
The business owner’s ability to assess key issues such as gross margins, cash flow, and inventory turns will ultimately affect the size and type of financing you need - That is where experts assist and advise the acquiring firm.
How long does business acquisition funding typically take to secure?
Traditional lenders typically require 60-90 days to fund business acquisitions, while alternative financing options may move faster, often closing within 30-45 days.
What documentation is required for business acquisition financing ?
Required documentation includes:
- 3 years of business financial statements
- Personal tax returns
- Business valuation report
- Detailed business plan
- Purchase agreement
- Personal financial statement
Case Study:
A Canadian manufacturer struggled to secure traditional funding for a $2.5M acquisition. By implementing a hybrid funding strategy combining seller financing (40%), alternative lending (35%), and personal investment (25%), they successfully closed the deal within 60 days. The structured approach maintained adequate working capital, enabling 30% growth in the first year post-acquisition.
KEY TAKEAWAYS
-
Financial structuring determines acquisition success through optimal leverage ratios.
-
Thorough due diligence prevents costly mistakes while revealing hidden opportunities.
-
Strong cash flow projections substantiate funding requests effectively
-
Relationship building with multiple funding sources creates backup options
-
Understanding business valuation methods strengthens the negotiating position
CONCLUSION
All business purchasers want their proposed deal to move in the right direction.
For financing solutions for company business purchases with the optimal financing structure call
7 Park Avenue Financial.
We are a trusted, credible, and experienced Canadian business financing advisor who can practically assist you with leveraged finance transactions in the SME sector in Canada for long-term growth and success to finance a business acquisition properly.
FAQ
What makes business acquisitions more advantageous than starting from scratch?
-
Immediate cash flow potential
-
Established customer base
-
Proven business model
-
Existing operational infrastructure
-
Trained staff in place
How can flexible funding options benefit your acquisition strategy?
-
Multiple funding source combinations are possible
-
Customized repayment terms
-
Lower initial capital requirements
-
Faster approval processes
-
Risk mitigation opportunities
What role does seller financing play in successful acquisitions?
-
Demonstrates seller confidence
-
Reduces upfront capital needs
-
Provides valuable transition support
-
Offers flexible payment terms
-
Creates aligned interests
Why consider alternative funding sources?
How does proper funding structure impact acquisition success?
-
Optimizes cash flow management under proper debt financing structures
-
Reduces financial strain
-
Enables growth investment
-
Maintains working capital
-
Preserves emergency funds
-
Properly addresses intellectual property issues
What is the typical timeline for funding a business acquisition?
-
Application process: 2-4 weeks
-
Due diligence: 4-6 weeks
-
Approval process: 2-3 weeks
-
Closing process: 2-4 weeks
-
Total timeline: 10-17 weeks
How much down payment is typically required?
-
Traditional banks: 20-30%
-
GovernmentSBL loans: 10-15%
-
Seller financing: 10-40%
-
Alternative lenders: 15-25%
-
Private equity: Varies by deal
What affects funding approval chances?
-
Personal credit score
-
Industry experience
-
Business performance
-
Collateral availability
-
Down payment size
How does business acquisition finance differ from traditional business loans?
-
Specific purpose financing
-
Higher scrutiny of target business
-
More complex documentation requirements
-
Multiple funding source coordination
-
Specialized underwriting criteria
What role does proper valuation play in funding success?
-
Determines appropriate purchase price
-
Influences lender confidence
-
Affects down payment requirements
-
Impacts funding structure
-
Guides negotiation strategy
MORE INFO:
BDC
GOVERNMENT OF CANADA
