Guide to Business Acquisition & Mergers Finance
Acquisition funds are required when a company wants to expand by purchasing another company and has to raise capital to complete the acquisition. In our guide to business acquisition and mergers, we cover:
- How do I find the right business to buy?
- What is Acquisition Finance?
- How to raise Acquisition Finance?
- How do I find the value of the business acquisition target?
- How do I find funding for business acquisitions?
- Funding to franchise your existing business
How do I find the right business to buy?
Finding the right business to purchase will depend on your aims and objectives. The company you choose would ideally complement your unique skills, interests and/or your current business.
Additionally, it should be financially stable and have the ability to succeed under your leadership.
What is Acquisition Finance?
Acquisition finance is a type of finance facility that is used to acquire or merge a business. As well as acquisition finance, there is also different type of funding available such as government funded loans, using your own savings or assets that you own.
How to raise Acquisition Finance?
Using your own funds – If you have the capital to purchase an acquisition, you can use it to fully or partially fund your acquisition. If you decide to use your own capital, you may wish to look into other types of finance to fund other areas of the business later down the line.
Government Loans – Sometimes there may be Government loans available. On GOV.uk you will be able to search and find out what finance and support are available for your business.
Business Acquisition Loans – One of the most common ways is using a loan to buy a business or fund the majority or partially your acquisition. There is a panel of lenders, some who specialise in specific industries and activities. Finding the right lender can be challenging however this is where you can rely on a commercial finance broker’s experience and knowledge.
Angel investors – Sometimes acquisitions can be funded by a high net worth individual and in exchange, they will ask for a percentage of your current business and acquisition or a percentage of the acquisition. This will be discussed, and a contract will be drawn up by solicitors.
How do I find the value of the business acquisition target?
When looking at the business that you’re looking to acquire, you need to ensure that the business purchase price is correct. There are a handful of factors that you should consider:
Assets – A company’s assets are one of the most tangible aspects of its value. The value of the business’s assets (less any liabilities) can be used to calculate its net asset value if it owns items like real estate, machinery, inventory, or intellectual property.
Earnings – The revenue the company generates is crucial in determining its value. The business’ actual value might be determined by multiplying its annual profits.
Comparable – The revenue the company generates is crucial in determining its value. The business’ actual value might be determined by multiplying its annual profits. Generally speaking, the more times you might multiply the earnings to arrive at a valuation, the faster the earnings are growing.
How do I find funding for business acquisitions?
There is a large panel of acquisition financing lenders available, some specialising in specific sectors and industries.
We believe that using a commercial finance broker like ourselves can make it easier to source business acquisition finance. A good commercial finance broker will have strong knowledge.
A frequently asked question is “Can you get a business loan to buy a business?” and the answer is yes. A business loan is one of the options that are available for a business acquisition. The finance solution will depend on your requirements and needs.
One of our clients left us a review commenting on their acquisition finance experience with us:
“Mike has been instrumental in getting our acquisition over the line. Mike was among a list of 28 brokers I spoke to over 2 week period and while everyone else was sending me finance options with interest rates 19% over base rate or fixed over 2 years with a personal guarantee and 50% deposit.
Mike rolled in with 9% interest over 6 years with no personal guarantee from a high street bank along with a few other options equally as good. Incredible stuff”
What about funding to franchise my existing business?
Franchising your existing business is different to acquisition finance therefore lenders are possibly going to ask for different information. With the finance being used for a different purpose some lenders may not like it, however, some lenders specialise in this.
If you’re interested in franchising your business or looking to purchase finance, speak with our Business Franchising and Lending Manager Sam Roberts-Carr. Sam has previously worked in the industry and has a wealth of knowledge that’s supporting growing businesses that are looking to franchise.