YOUR COMPANY IS LOOKING FOR BUSINESS ACQUISITION FINANCING
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?
CALL NOW - DIRECT LINE - 416 319 5769 - Let's talk or arrange a meeting to discuss your needs
EMAIL - sprokop@7parkavenuefinancial.com
7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
FINANCING AN ACQUISITION IN CANADA
Business acquisition is a strategic endeavour that offers significant growth opportunities for entrepreneurs.
Unlock the secrets to seamless business acquisition and overcome financing hurdles effortlessly.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer financing for business acquisitions & solutions that solve the issue of cash flow and working capital – Save time and focus on profits and business opportunities
Canadian Business Financing with the intelligent use of experience
BUSINESS ACQUISITION FINANCING OPTIONS IN CANADA
When you are looking for a funder for a business acquisition or merger with another company or if you're acquiring a business, remember something we heard the other day - ' Genius is often just pointing out the obvious truth that no one else sees.'
So when we recently talked about some critical aspects, you should not overlook this type of financing challenge we remembered ... ' Wait ... there's more!”
Acquiring a business is a step that can take the entrepreneur to new heights. Business acquisitions involve purchasing an existing company, offering you the benefits of an established brand, customer base, and operational structure.
Buying a company reduces the risks and challenges of starting a new business from scratch, providing a more secure path to growth and success. Whether an experienced entrepreneur or a first-time buyer, understanding business acquisitions' challenges and potential solutions is crucial for making informed decisions around your financial goals and business objectives.
When buying a business, it's critical to ensure that you understand that you and the seller have somewhat separate agendas. There's no question about that!
Simply speaking, it’s essential to step outside those agendas, look inside, and ensure you have the proper evidence on assets, cash flow, and valuation.
WHY DO ACQUISITIONS OF A TARGET COMPANY SOMETIMES NOT HAPPEN?
Experts in the field say that trends now show that while there seem to be many businesses available for purchasing and financing, many deals fade into oblivion on a target company. A lot of reasons might exist for that fact when it comes to how to finance an acquisition - Some of them might be:
Poor objectives of buyer and seller
Inadequate financing knowledge of a proper financing structure
As an acquiring company, it’s important not to underestimate your capacity to value and finance a deal, as tough as it might seem to admit that.
IT'S ALL ABOUT ASSETS, CASH FLOWS, DEBT, AND PURCHASE PRICE!
Many purchasers and sellers have a huge challenge in assessing existing and future debt issues in your deal.
Aside from organic growth, the synergy of a merger or acquisition of an existing business has tremendous appeal for growing a company’s products and services. Acquisitions can also be a strategic move for business growth, enabling companies to expand their product lines and services.
Financing is often about the amount of debt that is, in fact, existing or planned and does not necessarily make or break a deal.
Most experts say it’s all about two things in acquisitions - hard assets and cash flows. And by the way, that’s future cash flows that you can reasonably predict!
PRIVATE TRANSACTIONS HAVE NO PUBLIC LIQUIDITY
Remember that unless you’re purchasing a public entity, which certainly doesn’t happen often in the SME sector, the liquidity issue around all those acquired assets and intangibles doesn’t exist.
Combining or restructuring companies may often create a new legal entity. So your challenge is understanding the value of assets and cash flows, but don’t forget those items, such as intangibles! Perceptions of clients and lenders for smaller firms are equally as important.
THE CASH FLOW MULTIPLE IS A COMMON VALUATION PRACTICE
The term 'cash flow multiple' in business valuation refers to a standard method of determining a business's value based on its cash flow.
It represents the ratio, or what we at 7 Park Avenue Financial, call the ' relationship' of the business’s value to its annual cash flow. Buyers, sellers, and lenders use this multiple to assess how much they are willing to pay or finance a company's cash flow.
The process especially helps compare the business to others within the same industry or sector, allowing for a standard way to compare companies.
For example, if a business has an annual cash flow of 500k valued at $2.5 million, the cash flow multiple would be 5.
The cash flow multiple can vary based on factors such as the industry, growth potential, profitability, and risk profile of the business. A higher multiple will often suggest higher chances of growth and profits.
5 METHODS OF SUCCESSFULLY COMPLETING ACQUISITION FINANCE / TAKEOVER / OR BUYOUT
You have the financing tools available to make the ' right ' acquisition. They include -
Government business loan—The ‘SBL.’ = SBL loans will cover acquisitions up to a loan amount of 350,000. Interest rates are very competitive, and repayment is typically over a 2-to 5-year period, so well-planned SME/SMB transactions should safely cover loan expenses and financing costs.
The federal government guarantee on the program provides a guarantee and safety measures for Canadian banks, who, in turn, can now lend money on acquisitions that might otherwise not meet bank criteria - For qualification under the Canada Small Business Financing Program, talk to 7 Park Avenue Financial.
When using this program, down payments/ owner equity range from 10% to 40% for acquisitions. However, the borrower must meet the SBL requirements regarding the business size ( revenues must be under 10 million dollars ), which includes limits on net worth, income, credit score, and overall loan size regarding the 1.1M k cap.
Many borrowers avoid the program due to the 'paperwork' and application process, including the need for a business plan. 7 Park Avenue Financial prepares business plans that meet and exceed bank and other commercial lender requirements for our clients.
Asset Based Lending - ' ABL' lending focuses on the balance sheet and the concept of a leveraged buyout - funding for accounts receivable, inventories, fixed assets and real estate
Bridge Loans
Cash Flow loans / Mezzanine financing -
Mezzanine loans are cash flow loans often termed ' the middle ' of debt and equity financing - Cash flow is the collateral for the loan, and typically, no other collateral is required for a mezzanine loan - This financing normally ranks behind a senior lender. It can be a crucial component of financing a final business purchase.
Bank term loans/lines of credit—Most banks, even those dealing with SMEs, have specific provisions for financing an acquisition, including the government loan program. With interest rates remaining historically low, it is still a good time to take advantage of a bank option when the price for your transaction is substantial.
Canadian banks will often provide the best terms. They know your business prospects are looking positive, and they’ll be keen to keep your business in-house in a current relationship. If your transaction meets bank credit quality, you should leverage this angle when looking for a bank loan for a business acquisition.
Banks seek solid management, a reasonable growth strategy, and a personal commitment to the business.
A term loan structure is typically the standard bank acquisition financing financial structure- complemented by a lien of credit to augment the purchase. Ongoing and future equipment needs can be achieved via leasing or business equipment loans from the bank or third-party lessor/lender.
Seller Financing - Owner financing is another method to fund an acquisition deal. Also known as "seller finance," it can greatly add creativity to a deal structure. Offering equity to the owner/owners of a target firm to finance a business acquisition can be one way of smoothing the process.
This would involve giving them some equity in the newly merged firm. If that is undesirable for various reasons, creative strategies around a seller note/vendor take-back of debt need to be considered in your transaction, minimizing the funds that need to be borrowed.
Reduced costs and potential flexibility on deal terms help minimize funding from a bank or third-party commercial lender.
Many buyers forget to assess the ongoing operational costs of the business, which may include the need for new staff, technology, the infrastructure around operations, etc. Purchasers who forget to take these points into account are at risk for the future success of the transaction.
KEY TAKEAWAYS
-
Business Valuation: Understand how to assess the worth of a target company to make informed offers.
-
Due Diligence Process: Learn the comprehensive financial, operations, and legal review.
-
Financing Options: Explore various funding sources like loans, investors, or seller financing.
-
Legal Considerations: Familiarize yourself with legal frameworks and contracts essential for acquisitions.
-
Integration Strategies: Develop plans to merge the acquired business into your existing operations smoothly.
CONCLUSION - BUSINESS ACQUISITIONS IN CANADA
While many entrepreneurs explore private equity or venture capital, these two solutions only apply to the smallest percentage of transactions for an acquisition loan. They are typically not in the SME sector of the economy.
The acquisition process and interest rates will also vary dramatically based on the size and complexity of your transaction.
Favourable low rates in the current Canadian economy make rates for acquisitions easier to achieve, helping a company reach new economies of scale and increasing the size of its operations and sales revenues.
Hopefully, we have pointed out some of those ' obvious ' truths that will make your small business acquisition and financing more successful.
Call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor with a track record of business finance success who can assist you with your business acquisition financing and funding needs.
Let's get started on acquisition loan solutions and resources to make your acquisition deal work.
FAQ: FREQUENTLY ASKED QUESTIONS
What Is Acquisition Financing for an Acquiring Company?
Acquisition financing allows users to meet their current acquisition aspirations by providing immediate resources that can be applied to the transaction. Acquisition financing is the capital that is obtained to buy another business. A business acquisition loan helps entrepreneurs acquire an existing business or franchise or buy out a partner or owner.
How do you determine the value of a business before acquisition?
The value of a business is determined through methods like market comparisons, asset-based valuations, and earning potential assessments.
What are common financing options for business acquisitions?
Financing options for a business acquisition include traditional bank loans, government-guaranteed SBL loans, private investors, seller financing, and leveraging existing assets.
What should be included in the due diligence process?
Due diligence in acquisition of a business should cover financial statements, legal issues, operational structure, market position, and potential liabilities. Topics for the acquiring firm might include issues related to a merger of two companies, including staffing and regulatory matters in the combined company.
How do you ensure a smooth integration after acquisition?
A smooth integration around acquisitions for target companies involves clear communication, aligning company cultures, merging systems, and retaining key employees.
What are the tax implications of business acquisition?
Business acquisitions can have various tax implications, including potential deductions and liabilities, which should be reviewed with a tax advisor.
How do you negotiate the best terms for a business acquisition?
Negotiating involves understanding the value, being prepared to compromise, and seeking win-win scenarios for both parties.
What role does company culture play in business acquisition?
Company culture impacts employee retention and operational efficiency, making assessing and aligning cultures during integration is crucial.
What are the risks associated with business acquisitions?
Risks include overvaluation, integration challenges, cultural clashes, and unforeseen liabilities, which can be mitigated with thorough due diligence.
.
How can post-acquisition planning ensure long-term success?
Post-acquisition planning involves setting clear goals, monitoring progress, and adapting strategies to ensure the combined business thrives.
How can I determine if a business acquisition is right for my company?
Evaluate your company's financial health, strategic goals, and readiness to manage additional resources before deciding on an acquisition.
What are the key steps in the business acquisition process?
The process in acquiring a business includes identifying targets, conducting due diligence on the potential acquired company, securing financing, negotiating terms, and planning integration.
