Acquisition Finance: Increase the size of your operations through business acquisition.
With 2022 well underway, business owners are continuing to proactively seek out ways to achieve growth and upscale. Business growth by acquisition is a great strategy for many SMEs. However, having the necessary capital to invest can be a bit tricky. If a business prefers not to pay out from its own funds and resources, the purchase can use acquisition finance for completion.
What is Acquisition Finance?
Acquisition Finance is the funding used by a company specifically for the purpose of acquiring another company. After that, SMEs can increase the size of their operations and benefit from the economies of scale achieved through the purchase. This type of finance covers a range of financing structures whereby the customer will acquire all or some of the assets or shares of a company.
Considering a business acquisition? Here’s how it can benefit your business:
Staff:
Being able to obtain more staff and additional skills that can enhance knowledge of your industry, sector, and other business intelligence. Therefore the business you choose to merge with should have systems that complement your own and is scalable to run a larger business.
Diversification:
An acquisition can introduce a more diverse range of products, services, technologies and even markets. Furthermore, business acquisition may offer you new opportunities that you can sell into via your existing distribution channels.
Market Share:
Increasing market share by bringing access to a wider customer base and/or a new region. This is something that may not have been possible prior to acquisition or may have taken several years to achieve.
Competition:
Business acquisition is often a cheaper option for buying up new products, services, or IP – usually costing less than it would to develop them yourself.
Economies of scale:
Any business purchase should result in additional turnover, therefore lowering unit costs and improving profit margins.
Buying Power:
By going through a acquisition, a company may be able to achieve more favourable terms from its supply base.
Financing an Acquisition
Acquiring a new business can be costly and having the capital up-front to do so is unlikely. That’s why acquisition finance is a popular solution to help close the gap between your funds and the cost of the business you’re acquiring. Here’s a summary of the many ways that you can finance an acquisition. You may wish to choose one, or a combination to raise the necessary funds needed to complete the deal.
Cash:
In a cash acquisition deal, shares are exchanged for cash. This method is mostly for use in situations where the company being acquired is smaller and has lower cash reserves than the company acquiring it. Naturally this option requires the company making the acquisition to have the required level of cash reserves to complete the purchase.
Acquisition Finance:
Most companies may not have access to the cash reserves to pay out of their own funds. Therefore financing is a popular option for lots of businesses. Considered the most inexpensive method of financing an acquisition, the finance can be structured in a variety of different ways. For instance, one being asset-backed financing. This involves funders or banks lending funds based on the assets of the target or existing company. This could be accounts receivable or trade debtors, property, plant and machinery, vehicles, intellectual property or stock/inventory.
Equity:
Often desirable when debt financing is unachievable. A proportion of shares/equity can be sold to another party which will raise the necessary funds to complete the purchase.
Deferred Consideration:
The buyer can pay part of the purchase price after the closing of the deal and the acquiring of the business. This often depends on the future financial performance of the target company.
Why choose to finance an acquisition?
Talking finance can be overwhelming. However, when you finance an acquisition, most deals are structured with a limited up-front cash contribution by utilising acquisition finance. This is ideal if you’re an SME who would like to make an acquisition but doesn’t have a large pool of funds or cash.
How can PMD Structured Finance Solutions help you?
From acquisitions to takeovers and buy-outs, PMD Structured Finance Solutions supports strategic business growth. Moreover, with access to over 150 lending providers, we can offer flexible finance solutions for whatever your circumstances are. Historically your existing bank would have tended to be the preferred choice for structured finance. However, today there are many more options available to businesses through the alternative finance market. Furthermore, these options are usually more flexible, faster to access and just as competitive.
Established in 2020, PMD’s Structured Finance Solutions division offers support to SMEs and business advisors with funding for transaction led requirements. Since inception, our dedicated team of specialists has supported over £80m of transactions. We’ll introduce you to our team of advisors who will be with you every step of the way.
Speak to our Specialists
Got any questions? Get in touch with our acquisition financing specialist to understand how we can support you and answer your queries. Please contact Callum Bull, Structured Finance Director on 07923 215223 or callumb@pmdbusinessfinance.co.uk
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