When it is time to organize the financing of an acquisition, it is important to be creative. When searching for money to buy a company, you will notice that a number of community banks, generally large donors of certain acquisitions, encounter difficulties because of their portfolio of degraded residential loans (manufacturers). Creativity can make the difference between access to the capital or cancel the acquisition, especially when the credit markets are tighter.
Here are some options for financing acquisitions:
1. Financing of the owner / financing of the seller – first go to the seller. Who is better ready to finance the company than the person or society that owned it? They know better the business than anyone and are the most familiar with its risks. In the current environment, you should be able to get 40 to 70% of corporate finance through owner funding. You must convince the seller that you are a good risk, just as you would convince a bank.
2. Supplier or Supplier Funding – Suppliers and sellers of the target company are a good source of funding. Their belongings will probably increase under your new property. (That is, if you do not intend to develop the company, why would you buy it?) Take advantage of this growth in their business to negotiate for the financing of them. If the target company has been a good customer, the supplier is informed of the company and will better understand the risks inherent in a typical bank. Note that if you are an existing company that acquires another company, you can pursue funding from your suppliers and your suppliers. The same reasons apply.
3. Mezzanine financing or private equity financing – Mezzanine and private equity funds that serve small and medium markets raised by large sums of money prior to the merger of the market. So they have money to spend and seek great opportunities. With fewer people and companies making acquisitions, even if multiples are very low, it’s an ideal time for mezzanine financing. The target company will generally require revenues from $ 10 to $ 20 million and an increase and EBITDA of $ 2 to $ 3 million and more to be interesting to a mezzanine or a private equity fund. Why? These funds must spend large quantities in a relatively short period of time (5-7 years) in order to need greater offers.
4. Bank Debt – If the target company has many long-term assets, in addition to good cash flow and a high profit margin, you should have relatively few problems to find banking funding. However, if you want to buy a service company that has a lot of receivables and other assets in the short term, you may encounter difficulties. Find a bank that has a bastard of financing of the type of company you buy. In addition, talk to the seller’s banker. If the seller has a strong banking relationship, the banker will know the business well, increasing the likelihood that this bank provide funding to maintain the relationship and the traveling accounts.
5. Funding of receivables – If you have trouble obtaining bank financing, continue account receivables. They can provide term loans and credits against receivables. Although the interest rate is higher, these companies are more familiar with debt financing and therefore often more comfortable with loans against appropriations.
6. Previously paid sales – Approach clients of the target and ask them to make a basic purchase or to pay for several months’ or a year of year of products or services in exchange for a year Important discount.
Here are some acquisition financing options to stimulate your own thought and creative approach. There are other alternatives, some of which can be specific to your particular business.