Merger and Acquisition Financing:  Additional Things To Consider When Buying a Company

1. Seek A Cooperative Seller – To allow enough time to get the best possible financing terms, it can take 120-180 days to close on both the financing and the acquisition. As a result, a buyer needs a cooperative seller. How do you get a cooperative seller?
   

2. Make Every Effort To Give The Seller Their Target Purchase Price – Most sellers have a price in mind and with a little analysis you can quickly determine whether their price is reasonable. If you are convinced the target business will add value to your business and can be financed, make the seller happy and motivated by offering them their target purchase price.
   

3. Give The Seller Quick Feedback - Make your initial offer simple, and attractive. Give the seller as much cash upfront as possible. Avoid overly creative’ strategies that make the seller think they are financing their own acquisition. Follow-up the verbal offer with a formal Letter of Intent. Once you have a signed Letter of Intent, you have a committed seller.
   

4. Make The Process Easy For The Seller – Try to minimize the seller’s time, effort and expense. This will keep the seller energized and motivated throughout the transaction. Share your key milestones with the seller, particularly as you secure financing for the transaction. Having a motivated, cooperative seller is essential to secure financing at attractive terms.
   

5. Create A Comprehensive Business And Financial Plan – To get the best possible financing terms and improve the likelihood of success, create a business plan that details the areas of strategic, business, and financial synergies as well as a detailed picture of the future projections of the combined business. Many acquisitions fail to perform because the detailed planning was never done.
   

6. Solicit Multiple Financing Sources – With a strong business plan in hand, the company is in an ideal position to seek financing customized to their needs. Most important is a well developed plan allows buyers to get financing based on the combined businesses not just the buyer’s current business. A business plan illustrating the combined operations provides more collateral, more cash flow and greater certainty and usually substantially better acquisition financing terms. But, customized acquisition financing can only be found if you provide the detailed information necessary for financial institutions to understand it. Financing terms often vary significantly from one institution to another and substantially impact the total cost of the financing (and possible ownership dilution). Also, the financial covenants and risks can also vary substantially from one group to another. As an example, some institutions may require personal guarantees or stock ownership (or warrants) while others do not.
   

7. Copy The Financial Partner’s Homework – It’s always important to do due diligence on any acquisition target. Most companies can perform adequate due diligence on a company’s operations using a checklist, common sense, and a little effort. Thankfully, your financing partner will also perform their own due diligence, particularly on the financial aspects of their business. The benefit of using their work is not only less work and expense for the Company but should they find any problems, both the company and the financing partner can go back to the seller to address the problem. Sellers are usually much more responsive to questions and changes coming from the financing group that also has the checkbook to write the seller’s check.
   

Admittedly, some of the strategies outlined above may seem to fly in the face of conventional wisdom, but they do provide the key ingredients to a successful transaction and build value for the most important stakeholder’s in any transaction, the buyer’s existing shareholders.

Return To: Acquisition Financing

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