Lawyers Guns And Money . Acquisition And Merger Financing And Business Lending In Canada

by

sprokop

Acquisition financing in Canada. Lawyers, Guns and Money?! Do we really need all three of those? Of course not, in fact Money and probably some measure of \’ lawyers\’ should do.

Warren Zevon\’s rock classic song of the same name \’… send lawyers guns and money \’didnt include unfortunately any merger busines lending advice for business owners and managers in the SME sector who contemplate properly completing an M&A transaction.

Let\’s examine some key strategies and tips around your consideration of an acquisition financing or merger. There are different reasons for buying a business, and at the same time numerous financial strategies exist to achieve the final goal. Proper merger and acquisition financing compliments the final exit strategy of both the founders of the firm being acquired, as well as for the owners of the newly created firm .

Today we\’re talking mostly about what\’s known as the \’ forward merger\’ wherein your company survives by acquiring the other.

To say you need a team of experts in a successful transaction is a major understatement. That team will allow you to properly position both companies and ensuring proper valuations are in place prior to and post M&A.

Its human nature for buyers to bid low and sellers to ask high, so solid analysis of current financing structures is critical.

Leverage is a key concept in pre merger and acquisition financing analysis. And we\’re talking two kinds of leverage – both financial and operating g. Transactions often don\’t make sense if the financial leverage is more than 3:1 from a debt to equity perspective, and the operating leverage analysis includes fixed and variable cost analysis.

The amount of leverage you will ultimately have will often determine what type of financing and what lender will successfully complete your deal.

The concept of \’ friendly debt \’, which can be a vendor take back is a great place to focus , and transaction that include a healthy \’ VTB\’ are generally viewed as favorable . Of course if your lender for the acquisition financing considers the VTB as pure debt that\’s a different story.

But, as we said, generally speaking a solid VTB component of your transaction leads to a good deal. It\’s a great way of buying a business, especially if you view the financing of the transaction as a challenge. The reality is that a solid VTV plus the potential for profit in a business has the makings of a solid M&A deal. Quite often of course the VTB structure is much more favorable than traditional bank or commercial finance firm debt, and it gives all parties a reason to succeed, even the seller holding the VTB.

A solid down payment of equity in your own current business, proper M&A financing, and a solid VTB from the current owner or owners simply make for a probably successful acquisition financing win.

There are numerous financial considerations and analysis required for a solid M&A deal that represents a win/ win. They include our previously mentioned debt to equity, as well as other concepts such as cash flow servicing.

In the end result the amount of debt you take on in a merger via a business lending vehicle can make your firm more conservative in nature as you\’re focused more on servicing the debt than focusing on new opportunities

Talk about some complex scenario – identifying the opportunity, value and pricing your target, and, oh yes financing via a proper business lending strategy. So, as our friend Warren Zevon sang \’ send \’ lawyers, guns and money \’, but our recommendation is to focus on # 3 – Money for your merger and acquisition financing in Canada.

Speak to a trusted, credible and experienced Canadian business financing advisor for assistance on your SME M&A financing needs

Stan Prokop – founder of 7 Park Avenue Financial – http://www.7parkavenuefinancial.com

Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years – has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info re: Canadian business financing & contact details: http://www.7parkavenuefinancial.com/merger_acquisition_financing_business_lending.html

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