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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Email = sprokop@7parkavenuefinancial.com
When it comes to the lower end of the corporate market, takeover financing in Canada still requires ' grown up ' finance similar to that used by the ' big boys.'
What motivates the business owner/manager to consider business acquisitions, and what challenges come from understanding how to finance fixed assets, receivables and inventory, and intangibles? Let's dig in.
The takeovers, mergers and acquisitions we read about daily are more often than not larger companies that in many cases are public. A very significant amount of information is available on these deals, so given the relatively easier way to value and finance those firms, the question becomes: How do you value and finance a private company in Canada?
Market expansion is really the ' catch all ' reason most use for contemplating a takeover. The ' subset ‘reasons include:
Adding new products
Maximizing economies of scale
Reduce competition
In many takeover cases, certain assets can be sold to help finance the acquisition. On an ongoing basis, the acquiring firm will always focus on speeding up the deal and not incurring unneeded expenses.
At the heart of the takeover, the need is to assess the value of assets and cash flow and profit analysis.
The whole area of “Asset Valuation ' comes with the need to understand that both fixed, current, and goodwill assets must be viewed differently. Fixed assets represent earning power, so the often large differences in value relative to book value, market value, replacement cost, etc., must be thoroughly assessed.
Receivables and Inventory represent operating cash flow and should be analyzed in the context of the day’s sales outstanding and inventory turns, respectively. If these two assets are not ‘turning ' properly, a lot more time should be spent analyzing why.
Ways to finance your takeover? They include various types of asset-based lending, commercial bank loans, sale-leaseback strategies, unsecured cash flow loans, and the Govt Small Business loan for small transactions. The ability to minimize debt and arrange the right type of asset financing for short and long-term needs is key.
Growing organically is, of course, great - growing via an acquisition or merger is great also - and often quicker! SME Commercial firms in Canada are probably in the thousands, with many of those firms have underutilized and under-managed assets of all types - equipment, real estate, etc. If you're looking to investigate and execute takeover financing to expand your business, seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with ' grown up ' finance solutions.
Stan Prokop
