We caught up with Unloq Limited Managing Director John Braithwaite about the strategic importance of financing in business acquisitions. Here’s a snapshot of John’s expert insights.
Acquiring an existing business can be a strategic move to expand market share, gain access to new products or services, or leverage established customer relationships. Our business, Unloq, helps companies of all sizes acquire businesses, off and on market, to fit with their strategic growth goals. We have been involved in many deals over the last few years and one thing is common between pretty much all of them: finance!
Even corporate buyers with strong cash balances tend to favour finance as a part of the transaction as it de-risks a deal. Here are some of the more common financing options, which can help buyers understand what may be available to them, as well as sellers become better informed of what they are being asked to do.
Debt Financing
Banks and finance companies will offer Bank Loans for business acquisitions, but they typically require collateral and a strong financial track record, and may ask for a personal guarantee.
The buyer might also ask the seller for Vendor Financing which essentially means that the seller is paid out of future revenue and profits which can often be agreed in the form of a seller’s note.
Asset Financing
Borrowing against the Assets of the acquired business, such as inventory or equipment, is a common way to raise capital for a deal. If a property is involved this can often be leveraged for initial payments and combined with other forms of debt financing. The assets of a business are often folded into the transaction, so these can be used to help raise the funds.
Equity Financing
Whilst this may be more share swap than financing, it can work well for sellers to receive shares, or a combination of shares and capital, based on a reasonable valuation of the relative businesses. This can also secure future employment for the owner if they want to remain within the new ‘group’ of businesses.