How To Achieve Acquisition Financing Successfully In Canada

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How To Finance A Business Acquisition in Canada

While the terms m&a financing and capital acquisitions conjures up visions of having to be a Bay Street / Wall Street heavyweight when it comes to sophisticated financial knowledge the reality is that financing to buy a business in the small to medium-sized sector of the Canadian business landscape actually requires a healthy element of ' do it yourself ' when it comes to acquisitions of competitors, synergistic companies, etc. The proper source of financing may often mean a number of appropriate solutions must be analyzed and investigated.

Companies consider financing a business acquisition because they want to increase revenues non organically or in some cases penetrate new geographical markets. So the right capital to fund a purchase and then operate the business is key.


Very few business owners can complete an all-cash deal, even in a good economic environment, much less a pandemic! Therefore financing buying a business with the proper and right type of debt allows you to not give up equity - that equity often called the most expensive form of financing. So if you have a good target company with understandable profit, sales and cash flow generation ability acquisition financing through borrowing is a recommended strategy.


Don't however underemphasize the importance of a solid external team to assist you with the expertise you need. Let's examine some solid ' need to know ' info that will help the Canadian business owner and financial manager address any acquisition successfully.

The goal of your purchase from a finance viewpoint is to ensure you have what is known as a ' capital structure ' in place that allows for a smooth takeover and continued growth of your target company. So from a business finance viewpoint, you want to focus on the right mix of debt and equity in the final structure that allows a firm to both operate and grow. The ' cobbling together ' of that right mix of finance leads to successful business acquisitions. In some cases you are integrating a business into the new business, which is even more of a challenge.

The value you are placing on the target acquisition is critical. It's that buying price that ensures you are paying for true value and worth. There are many different measures relating to a final valuation and financing an acquisition - typically revolving around sales, earnings, levels of depreciation, and a final calculation of what valuators call 'normalization' of the current earnings. This ' normalization process' takes out any expenses that won't incur in the future again, therefore providing a true ' earning power '.

Typical Acquisition Finance Structure / Financing The Purchase Of An Existing Business

Those measures of valuation we described are typically calculated as ' multiples' of the valuation points in question . Note that multiples vary in each industry allowing the purchaser to make an 'apples to apples' comparison of what he or she is buying. For example a company in a certain industry's sale price might be expressed as a ' 5 times multiple ' of current earnings before items such as depreciation which is a non-cash expense.

Business Acquisition Loans In Canada / Types Of Business Acquisition Lenders

A sample capital structure for financing acquisitions might look as follows:

Senior Lender
Selling Financing component
Cash Flow Loan
Owner equity component

As a buyer you need to determine what the potential earning power and sales revenues might be in future years, therefore allowing you to arrive at that ' multiple ' we have discussed. It is important to understand that lenders will always look very carefully at the ratio of debt and seller financing and owner equity to ensure they are in line with lender requirements.


Naturally the more a borrower puts in the less he or she has to borrow, which underwriters view as a buyer's commitment, or, in the language of the people 'skin in the game'!

The debt you incur in a transaction is usually a combination of senior debt which covers the main assets of the business and typically will include operating facilities for accounts receivable and inventory that arise out of future sales.

Today many business people consider asset-based lending, also known as asset-backed financing as a solid alternative to traditional Canadian chartered bank financing. By lending aggressively against equipment, receivables, inventory and real estate a transaction can often be completed to the approval of the purchaser.

Subsets of asset-based lending such as accounts receivable finance and inventory loans are key solutions to a final lending mix. The right a/r finance and inventory finance will ensure you have a handle on your ' cash conversion cycle ', namely the amount of time it takes a dollar to flow through your business, and we can assure you that timeline varies within different industries.



Revolving inventory loans, based on the value of the inventory, provide the cash to pay your suppliers. It takes time to convert the inventory into sales, use the value of this asset to help speed the process. Available in conjunction with accounts receivable financing or as a standalone retail inventory loan.




In some cases, even in a management buyout scenario a bank or commercial finance firm will consider a leveraged buyout, essentially used the assets of the target company as security for a loan/loan. Naturally, in these cases, assets must be strong, and there should be solid evidence of historical cash flow to support the much higher than usual leverage ratios.


Financing from a senior lender, either a bank or a commercial alternative finance firm, will bring you, the purchaser, into the world of ratios, covenants, and personal guarantees. A shorter-term loan will be less restrictive in nature. Lenders will typically investigate personal credit history and credit scores of the buyer to help them feel owners run their personal financial lives in a reasonable fashion.

At 7 Park Avenue Financial, we will always tend to investigate the ability to identify ' seller financing ' as a part of the acquisition finance strategy. The strategy can often make or break a deal, and is typically viewed positively by lenders. It is simply the sellers agreement to e apid a percentage of the acquisition price at a future point in time. The bottom line? Less borrowing is required. Structures of the seller finance, also known as ' VTB ' or vendor take-back can vary but often are in the 10-20% range and have various forms of creativity around payment terms. You might also hear this term is called ' earn out '. Three different ways to say the same thing!

There might be conditions tied to the earn-out, so in most cases a lower rate of interest that current market lending rates. It is the epitome of a ' motivated seller '. In many of the transactions we see at 7 Park Avenue Financial seller owner and or management stays on for an agreed upon amount of time to ensure a smooth transition.




The amount of proper financing that you can generate, internally and externally (mostly externally!) will ultimately play a large part in the size of the company with whom you might be acquiring, or merging. Here is where valuations come into play and anywhere from 30 - 50% of the final price that you agree on might in fact have to represent a cash type scenario.

In some cases there is a shortage of the total term loan to get a transaction approved and closed, so some for of ' mezzanine financing ' will have to be considered. That financing will cover the gap created between borrowing power, equity, and the sale price. Mezzanine financing is often unsecured, relying solely on future cash flow generation, so interest rates on cash flow loans are more expensive, but, again, similar to seller financing, can make or break a deal.

For smaller transactions in Canada many companies consider the Government of Canada Small Business Loan program as one of the methods of financing acquisitions.



Naturally there are a thousand stories in the naked city, as many firms are acquired simply for the reason that they are not profitable for the current ownership. This does bring up a very key point though, which is that if you are looking at acquiring a firm that is in trouble, losing money, losing market share/sales etc then in fact a lot less cash is required for the transaction. However at that point you'll obviously have other challenges to address.


If there is a solid piece of advice we can give to the Canadian business owner and financial manager it’s to start a financing strategy around your acquisition early on. That final capitalization of the proper amount of debt and equity is critical.


When contemplating bank financing for business acquisition financing in Canada a solid, realistic and succinct business plan is required. We see many plans from clients that are far less than ' succinct ' and therefore raise more questions than answers.


So what does one in fact have to demonstrate to the bank? A good start is how your firm will operate the business - so a good examination of the financials and any key issues around the seasonality of sales and cash flows, customer concentration, production, and credit terms are key.


If the business you are acquiring does in fact have challenges it's clearly a good time to demonstrate how you will implement controls and changes around those challenges.

At 7 Park Avenue Financial our due diligence process spends a good amount of time on assuming proper levels of sales and cash flow, often in conjunction with a business plan we prepare to support your transaction. Spending valuable time on structuring financing your an acquisition will lead to optimal performance going forward. The right amount of flexibility in your finance may be well required down the road.


Spend a lot of time considering the amount of leverage you will ultimately have when acquisitions are completed. It's tempting, of course, to become highly leverage but this is the classic double-edged sword of business financing, and don’t think that high leverage will guarantee higher returns to shareholders, as that debt you are now carrying can, in fact, become a day to day nightmare down the road if not managed or financed properly.


Business acquisition financing in Canada is about finding a solid opportunity, analyzing your transaction carefully, and closing with the best financing possible based on your industry profile of debt and overall capitalization. Speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with acquisitions that make sense- financially!





7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



Business financing for Canadian firms, specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance. Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.


Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.





Stan Prokop
7 Park Avenue Financial/Copyright/2020

Guide To Acquisition Financing Via Commercial Business Loans In Canada

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What Is Acquisition Financing?

You or your company has made the decision to either merge or acquire another business. What are some of the key issues in successfully completing acquisition financing and business loans for commercial entities in Canada?

In certain circumstances, your business purchase might involve the taking over of a business already in family hands, versus the other end of the spectrum which would be a purchase of a competitor. Business owners/entrepreneurs are always focused on growth. It's critical that you establish a method to target the company you may wish to acquire.

The ability to be proactive in your search as well as to have a formal strategy is key to successful acquisition finance. The ability to buy and finance a business successfully is a proven way to grow clients and leverage the capacity of your business model - that translates into building your brand.



Business owners, we speak to at 7 Park Avenue Financial tell us they have found firms to buy in different ways. That candidate to buy might come from your own network of personal and professional contact; in some cases business brokers who know the market well are a strong source of deal flow. Accountants and lawyers are also good referral sources. It's important to establish some exclusivity around a transaction you are considering from a competitive viewpoint. That can be established via non-disclosure agreements, a letter of intent, or an agreement of purchase and sale based on certain conditions, one of which might be ... financing!



In many cases, acquisitions do not work out if the purchaser strays from his or her chosen industry. Staying in the industry you know provides a greater chance of success based on your industry experience, given that you have the ability to run a business in your particular industry. Therefore picking a company you know in an industry you know well typically leads to a higher probability of success. Naturally investigating thoroughly the true financial and business position of the firm is critical in the decision to buy process.



While that increase in revenue and profits can come from organic growth it makes sense to achieve scale more quickly by utilizing a business purchase model. That economy of scale can often be a faster growth in sales and profits. It's not always the case but many experts believe that a larger business enjoys numerous advantages, including more beneficial relationships with suppliers/pricing, etc.

Certain types of your clientele might prefer dealing with a larger firm, as well of course the obvious ability for a larger business to attract higher-skilled employees. Naturally, a larger firm has more capability to expand into new markets and services.

A good place to start is simply to ensure you’ve got the right reasons or goals around a merger or acquisition. In some cases you wish to diversify your company, more often than not though it’s simply a case of growing, both sales and profits of course

Is the term ‘opportunistic a negative one? We certainly don’t think so when it comes to legitimate business dealings, so in many cases, you simply have come across a firm or competitor that in your opinion is undervalued. The bottom line, it’s a bargain and you're focused on exploiting either undervalued assets or companies that are not performing well in certain market conditions. Almost always ' price ' becomes a key discussion point so experts caution when to know you have reached limits or criteria that would negate the sale.




On the other hand, just because a company is up for sale doesn’t mean the process will be any easier. Negotiations can break down, for instance, if the two parties disagree on the price. It is essential to set certain criteria and limits and be willing to walk away from the deal if certain conditions that are important to you are not met. Bottom line? Poor pricing on a good company is often a ' bad acquisition'.

How Does Acquisition Financing Work

Don't forget also that acquisition financing is all about some even more common sense scenarios as identified above. Its often a classic opportunity to lower your operating costs as overheads in the new firm can be cut and other efficiencies can be extracted from the combined mix.

Sources of Financing In Canada  / Acquisition Financing Lenders

Typically, but not always a term loan is the main source of financing and comes from the appropriate term lender / senior lender on your transaction. This might be a Canadian chartered bank, or it may be a specialized commercial finance company in the traditional or alternative lending space.

In some transactions, your purchase may be completed by a cash flow loan based on historical and projected cash flows of the target company. There is always the ' equity component' of the transaction, and this amount varies based on the overall credit quality and size of the purchase.

  Cash Flow Financing:  In many cases, a business might not have the asset base from a viewpoint of    ' tangible assets '. It is, therefore, necessary to demonstrate that cash flows have the ability to service your loan as well as covering off other fixed expenses. Good cash flow will allow you to obtain the most flexible terms possible for closing your transaction.


Seller financing can be a key aspect of your transaction and will sometimes ' make or break ' your deal. This financing, also known as vendor take-back / ' VTB ' can play a key role in business purchase success, especially if the seller is motivated and willing to participate.

A common form of acquisition finance for well-established target firms is mezzanine financing. It helps out the need to avoid additional owner equity, and while more expensive, it is based solely on the quality of cash flow of the firm you are purchasing. Rates are typically higher due to the lack of fixed assets backing the loan.



What are the types of acquisitions? We can summarize those into three areas, and in some cases, the type of acquisition you make will impact directly the type of financing and commercial business loans that you achieve.

Factors That Make Your Transaction Successful

  Purchase prices are always dependant on reasonable valuations. There are numerous ways to value a company based on multiples of sales, profits, cash flows, book value of assets, etc. The cash flow generation we have already mentioned is key, as it will ensure a proper understanding of the company's ability to hand debt and expand via new planned capital expenditures.

It's important to know that your senior lender will also look at the quality of management based on business and industry experience.



Back to our three merger scenarios - they are as follows: friendly, hostile, and leveraged or management buyout. Many smaller companies are of course happy and content to be taken over; they fully realize the potential synergies. However, in certain cases it gets somewhat ' ugly ' in that the management or owners of the firm you intend to buy or acquire simply are opposed to the idea.

Leveraged and management buyouts tend to be asset driven. The downside of a leveraged or management buyout is that if done improperly a large amount of debt can leverage your new firm negatively. There are numerous creative ways to finance acquisition financing in Canada.

What Are The Ways To Finance An Acquisition?

Financing methods include asset based lending, subordinate or mezzanine debt (i.e. unsecured loans based on historical and future cash flows) as well as a private equity component.
Valuation is an important aspect in the area of acquisition financing. Your valuation will have a direct impact on the business loans you enter into to complete the purchase.

In evaluating a final valuation or purchase price you will want to look at things like general financial operating activities - i.e. the financials. But don’t forget also that other factors such as new assets that might be required, working capital needs, etc also will drive that final valuation number.

Generally speaking businesses with hard assets are easier to finance - Those assets typically have value and are excellent collateral for business acquisition loans. This is particularly true of asset based lenders if your transaction requires alternative financing vs. traditional bank finance solutions such as a term loan.

Buying a smaller company, or even buying and financing a franchise can often be easily achieved by using the government of Canada's " Canada Small Business Financing Program '. This is a very flexible term loan with a maximum borrow amount of 1 Million dollars. The potential drawback to the loan is that the main collateral must be equipment, leaseholds, or real estate so borrowers should consult an experienced loan advisor familiar with the Gov't Guaranteed Loan. Under the program, the Canadian government shares the risk of the loan with the lender.

INDUSTRY STATISTIC - During the last 10 years, the government of Canada has underwritten almost 10 Billion dollars of small business loans, for over 63,000 companies!

Target acquisitions must be for companies with less than 5 Million dollars in revenue. The program does not cover farms of non-profit types of companies. The government sponsor of the program is Industry Canada.

Challenges In Business Acquisition

Buying a business is all about planning and ensuring you have a strategy. As well as the risk of overpayment and of obtaining a poor valuation  the purchaser will want to ensure he or she has a strategy of efficiently integrating the business to achieve maximum shareholder benefit.

Issues you want to address may include understanding the perceived or real weaknesses of the company in its chosen market. A business might have a wide variety of products and services so strategies must be implemented around pricing and service offerings. Your goal is of course to be a leader in your field and markets.

Business Valuation

Valuing your acquisition target is always a key challenge, and there are several different ways to come up with an acceptable value. Key factors such as what industry you are in, as well as the size of the company and typical profit ranges, will come into play. Companies also recognize sales revenues and profits in different ways. It is absolutely critical to come up with and understand what ' normalized ' financials will look like at the time of takeover/acquisition. Typically buyers will want to focus on the value of the company as ' going concern '. Buying distressed or turnaround situations is a whole different kettle of fish!

So in normalizing the financials you must look carefully at the core revenues and the assets that produce those revenues. You should be strongly focused on future income potential. One time events or expenses should always be discounted. For larger transactions, companies might choose professional business valuators.



At 7 Park Avenue Financial we want to be your key source for buying or selling your business - selling your company will often require either a valuation or business plan or probably both. Our goal is to ensure you have a financing structure that will allow for the proper sale, financing and growth of the business. Together with your accountant, lawyer, tax specialist etc, we focus on a smooth transition to a completed purchase.



In summary, when contemplating acquisition financing look at issues such as the proper mix of debt and equity, cash flow analysis, and various areas of operational risk and reward. If you want financial alternatives in financing your acquisition consider talking to a trusted, credible and experienced Canadian business financing advisor who will assist you in this exciting area of Canadian business finance.







7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



Business financing for Canadian firms, specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance. Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.


Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.






Stan Prokop
7 Park Avenue Financial/Copyright/2020

Business Acquisition Financing In Canada

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Buyout And Acquisition Finance Solutions

What Is Acquisition Financing?

It's the capital required to buy another business, as simple as that. The purchase of a business will require external capital, namely business acquisition loans . That is the challenge of financing a takeover. Acquisition opportunities are available and ongoing in every industry.


Acquisition financing in Canada almost always involves validating the price you're going to pay to purchase a small/medium enterprise. One reason is that companies in the SME sector don't always have the same talent available to price real value. Business people should of course rely on their trusted advisors for professional help in that area, but this article will hopefully give them insight and advice into their challenge.

There are a number of reasons why a smaller company might purchase another firm, it could be to simply get 'scale ' as opposed to current organic growth in the company. Bank loans and alternative sources of financing for term debt and lines of credit are the common way to buy a business and finance it successfully.

Government loans and seller financing are other methods to complete a business purchase.

A successful acquisition loan will facilitate the purchase of another business. The type of financing you require will depend on whether the business is a start up, or a more well-established firm.

HOW DOES ACQUISITION FINANCING WORK?

The good news is there are numerous ways in which you can finance the purchase of a business. In the new economy both traditional and alternative financing sources are available. The ability to procure reasonable rates based on the overall credit quality of the transaction is important when putting your financial strategy in place. Flexible terms and reasonable financing costs will help propel the purchase towards higher sales and profits.


In the current environment many transactions do not meet the lending criteria of traditional Canadian chartered bank financing. Alternative lenders may well provide the solution you are looking for - the challenge is to ensure rates and flexibility match your business goals. Banks in Canada look for key metrics such as growing revenues, profits, and a clean balance sheet. Alternative lenders will often focus on hard assets, receivables, etc, versus the traditional cash flow demanded by the bank underwriters.

Government of Canada Small Business Loans should not be overlooked as a potential source of financing. For many acquisition targets in the SME enterprise area, as well as in the booming franchise sector the government guaranteed business loan is a perfect match.


Note though that the program is focused on 3 asset categories, equipment, real estate, and leasehold improvements. Down payments are at a minimum and the program has rates and loan flexibility repayment that rivals that of larger corporations. Entrepreneurs applying for this loan should ensure they have reasonable personal credit and net worth, which are key lending criteria for the program.

SELLER FINANCING / OWNER FINANCING

One method of business acquisition financing that brings substantial creativity to the process is the ' seller finance' strategy. This method of financing has the seller/sellers of the business providing a payment contribution to the total purchase price. Purchasers then make installment payments or in some cases' balloon payments ' on the seller financing portion, typically with favourable rates and flexibility. This finance strategy can sometimes be the missing piece that takes your transaction over the goal line!




The terms involved in financing a business you are buying can themselves be overwhelming to those who don't regularly work with

EBITDA, intangible assets, capitalization and discount rates, lbo financing mbo financing

We would point out that as technically overwhelming as some of those issues might be, there is even a whole additional layer of complexity around longer term issues down the road. These would include:


- Owner and management compensation


- Insurance planning


- Estate planning


- Exit strategy



With reference to our last point on ' exit strategy ' imagine the look on some purchasers' faces when they have not even completed the deal and are encouraged to talk about an ' exit strategy '!



At the heart of the matter around the final price paid for a business is the concept that both parties feel they have reached a fair deal. As we all know the buyers and sellers' perceptions of the same deal might vary greatly. Ultimately all the technical jargon around buying a business comes down to a term such as 'reasonable market value'.


As common sense as this may sound it also has its challenges since is it only a hypothetical value based on all the different financial elements related to the purchase of a business.



The most commonly used valuation of a business is known as the ' value of future earnings '... Accountants and financial advisors often project earnings out as far as ten years and try and then place some value and normalcy around those future profits. Our advice in this area is simply that owners should not focus solely on future earnings potential; there are other factors to be taken into consideration.



Some of those other factors of course include the true value of the current business assets, such as equipment, real estate, fixtures and leaseholds, etc. We can only say that as critical as those assets are they must be supported by the company's ability to generate the cash flow to support those assets and grow the business.


Buyers and sellers frequently disagree on the total purchase price, with all sorts of psychology kicking in around prices being set artificially high for negotiation purposes, the buyers focus on a low- ball offer, etc.


We would also point out the buy/sell challenge is accentuated when it relates to a ' service' firm as opposed to a product firm. Many experts agree that ultimately the valuation of the business was so far out of whack that this clouded any possible attempts to negotiate a fair price for buyer and seller.


The bottom line: buying or selling a small to medium enterprise has its challenges. If owners are aware of the key basics around the technical aspects of the matter they can successfully utilize third party assistance (accountant, lawyer, trusted financial advisor) to consummate a successful transaction.

Buyers and sellers must focus on tangible issues as well as all the intangibles that come into play in order to assist in a proper (and a successful) buy or sell. Methods to finance a purchase depending on the overall size and credit quality of the business.

LOANS TO BUY A BUSINESS IN CANADA / BUYOUT ACQUISITION FUNDING SOLUTIONS

Commonly used financing techniques in acquisitions and mergers include:

Asset Based Loans ( The assets of the target company can often help to finance the purchase )


Non bank asset based lines of credit


Govt Small Business Term Loan


Cash flow loans/ Mezzanine Debt


Traditional bank financing

Accounts Receivable Finance & Inventory Finance - financing working capital through a/r financing provides valuable cash flow for day to day operations and the ability to finance inventories helps accelerate the cash conversion cycle of the business


Sale leaseback strategies


Vendor take backs


Working capital needs also need to be addressed, proving that buyouts and acquisitions require specific solutions to facilitate your transaction.


If you're looking to successfully explore the key aspects of buying and selling a business seek out and speak to a trusted, credible and experienced Canadian business financing advisor with a track record of business acquisition success, who can assist you with buying or selling your business.



7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com

Click Here For 7 PARK AVENUE FINANCIAL website !



7 Park Avenue Financial provides value-added financing consultation for small and medium-sized businesses in the areas of cash flow, working capital, and debt financing.



Business financing for Canadian firms, specializing in working capital, cash flow, asset based financing, Equipment Leasing, franchise finance and Cdn. Tax Credit Finance. Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR

Stan has had a successful career with some of the world’s largest and most successful corporations. He is an experienced

business financing consultant

.

Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.


Stan has over 40 years of business and financing experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion.

He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.









Stan Prokop
7 Park Avenue Financial/Copyright/2020

Buying A Business In Canada: Financing A Business Purchase In Canada

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Financing A Business Purchase

How To Buy A Business With The Right Acquisition Financing

Buying a business in Canada via the right acquisition financing will often involve looking beyond the numbers when it comes to ensuring business purchase financing options are in place. Business loans to buy an existing business is not just all about negotiating the sale price - it's also about the necessary funding solutions that must be put in place to ensure business survival and profitability. Let's dig in.



The pros, of course, call it ' due diligence’, when it comes to considering a business investment loan and how to buy a business. As well financing a business for sale is all about a pretty basic common sense premise: ensuring sales, inventory, accounts receivable and accounts payable are all reasonable, and that projected sales volumes make sense in the long term. The right business acquisition loans are an integral part of planning future growth.



Bottom line- the proper business purchase loan finance solutions tie together your plans for mgmt, mfg or delivering services, and marketing.



The essence of any business, large or small, is cash management. Working capital solutions and business financing rates must also be considered for effective ongoing operations.



A/R Financing/factoring



Bank revolving credit lines



Non-bank asset-based lines of credit



Inventory Financing



Tax Credit Financing



Small business govt guaranteed loans (maximum 1 Million $) Small Business Loans To Purchase A Business Can Often Come From The Government Of Canada Small Business Loan Program



Firms that are not profitable or that have ' challenged' balance sheets will not qualify for what we call ' traditional' finance. These types of companies can't comply with the financial ratios and collateral demanded by our Canadian chartered banks. Almost all businesses that sell on credit, large or small, need some sort of business credit line.



Numerous alternative financing solutions are in fact available - but at the same time new owners/mgr must be able to address and talk to items such as gross margins, operating inefficiencies, etc.



At 7 Park Avenue Financial we speak to many clients who wish to purchase a franchise business. That can be achieved via various financing programs, and might often include some ' seller financing ' when it comes to an overall finance strategy. That seller finance assistance in essence is another alternative capital that can allow the buyer to successfully complete the transaction. We also note that both new and used franchises can be purchased and financed.

Business Acquisition Financing Canada

Buying a business for ' all-cash ' is almost never the option available to purchasers. Top experts tell us than not even a 1/3 of businesses purchased are done via 100% financing. Unfortunately sellers like/want cash! More often than not the final structure of your transaction will be:



Owner Cash

External Financing

Vendor Take Back/Seller Financing (not always, but often)



‘ABL ' (Asset Based Lending) is often a solid solution for a business financing strategy. These types of facilities allow you to borrow heavily against inventory, accounts receivable and equipment/fixed assets.



One legal/technical issue often becomes a critical point in acquisition financing. That is the issue of ‘asset sales' vs. 'share sales'. From a buyer's perspective asset sales tend to make more sense - sellers focus on share and tax strategies for selling their businesses. This can often complicate financing.



We've seen there are some critical issues that can make or break the success of financing a business purchase. Those issues include proper valuation pricing, debt load, working capital and cash flow financing challenges.



If you're focused on a winning deal and financing a business purchase properly seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with your funding needs.




7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


Business financing for Canadian Firms, specializing in working capital, cash flow, asset-based financing, Equipment Leasing, franchise finance, and Cdn. Tax Credit Finance. Founded 2004 - Completed more than 100 Million $ of financing for Canadian corporations.

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Before founding 7 Park Avenue Financial in 2004, his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment, and Cable & Wireless. Stan has had in-depth, hands-on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing, and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.

Stan Prokop

Business Purchase Financing Tips : End The Confusion On The Type Of Loan You Need To Buy A Company

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Conventional and alternative solutions to business acquisition financing in Canada.


Information on business purchase financing in Canada . When you buy a business or competitor what type of loan and financial approach is required . Key issues to consider and focus on

We've spoken of buying a business and the types of purchase financing and loan that will help you accomplish that goal.

If you are using a more traditional approach and utilizing a Canadian chartered bank to finance the purchase we highlighted key elements of a successful close - management depth and experience, a strong business plan, and solid financial projections.

Don't forget also that typically in a more traditional process, i.e. through a bank you will also be required to provide personal financials and the guarantees that come with that. At the end of the day you want to be viewed as an owner or management team that has a strategy and objective, and that you are going to truly focus on growth and profits.

That issue of personal guarantees always comes up in client discussions. While we can in a general sense that any business purchase in the SME sector in Canada will come with that personal guarantee of the owner we can also quite safely say that you have some negotiating power on that issue that you might not know you had.

Are there any alternatives in the whole issue of the personal guarantee? We can offer up that different banks and finance firms have different focuses on the personal guarantee, and the reality is that if you are dealing with an experienced credible banker that has credibility with the bank underwriters you definitely have someone on your side in this issue.

As a final comment you can focus on some restrictions to your guarantee commitment, and you can even have a long term objective with your banker of then focusing on a release of the guarantee sometime in the future.

When we get down to the actual finance structure of your transaction it's critical to focus on the key assets of the business - accounts receivable, inventory, fixed assets, and in some cases real estate. One key issue that you want to determine early on is the issue of ' concentration ‘... for example if a huge part of the business volume is coming from one or two customers. This ' concentration ' issue alone can sometimes make or break your financing on the deal.

Cash flow is the solution that will take you to the goal line if there are not enough assets to complete the financing. On the other hand if cash flow is light or poor the actual assets might be the one element that allows you to successfully complete a purchase.

At a time like this it's actually useful to have a short list of the key elements that a bank or finance firm will focus on when it comes to approving your transaction - In ' old school ' terms they will be character and management depth, cash flow, collateral, current financial condition, and growth plans.

If you can't, or choose not to finance the business purchase through a bank numerous other solutions are available. They include temporary bridge loans, and asset based loan, unsecured cash flow loans, and receivable and inventory financing firms. Never forget you have the option to go ' ' conventional' or ‘alternative’.

Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can assist you with the right type of loan when you buy a firm and are seeking business purchase financing.

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Office = 905 829 2653

Email = sprokop@7parkavenuefinancial.com

http://www.7parkavenuefinancial.com


Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.

Stan Prokop

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

Buying and Financing A Business In Canada

Information on business lending strategies and solutions for merger and acquisition financing

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 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

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Office = 905 829 2653

Email = sprokop@7parkavenuefinancial.com

Click here for 7 PARK AVENUE FINANCIAL

http://www.7parkavenuefinancial.com


Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .



' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.

Stan Prokop

One Way To Buy A Company . Use ABL Finance Via An M & A Business Loan For Acquisition Financing

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Acquisition Finance For Success – The Why And How



Information on acquisition financing in Canada . Consider a business loan via ABL finance to successfully complete your transaction with no money down ? !

There's just a lot of interest these days, it seems, in acquisition financing as a way for Canadian business to achieve various different objectives. On way in which they can be successful is via an ABL finance business loan to finalize that objective.


Why do companies want to acquire each other ? Of course it's for a variety of reasons, including growing sales, becoming a market leader in their niche, cost reduction, or buying the ' secret sauce' technology of another firm.


We're always on the look for some new thoughts in Canadian business financing , so we were drawn to an article in one of the two leading Canadian business newspapers the other day which had the catchy title of buying a company with ' no money down. The article was written by one of Canada's respected investment officers and fund managers.


No money down? And acquire a significant business at the same time. We were intrigued. The essence of the article was that many ' bargains ' are available in Canadian business - it’s a question of finding them! The article went on to say that the essence of such a search, once you have found a target firm, is to go back 50 years. Go back 50 years ? !Actually what the author meant was that at this point in your search it's time to call on Benjamin Graham , acknowledged as the father of value investing by almost all, including his prize teach pet student Warren Buffet .


What's recommended by these ' guru's is to look at ‘ net working capital ‘ - something we focus on a lot in our own preachings. That figure is made up of receivables, inventories and any cash on hand.


What about the other assets though? Essentially it's offered up that they don't mater. We think they do, but Mr. Graham and Buffett actually disagree with us .. the nerve!


So this is where we come in. Where the author of the article focuses on dealing with Canadian chartered banks we prefer a faster better route, ABL finance.


The beauty of ABL financing, via an asset based line of credit is that it can also include the fixed assets that seemed to have been discounted by Mr. Graham and Mr. Buffett.


A true asset based line of credit encompasses our previously mentioned current asset accounts, as well as unencumbered fixed assets. And while the article we referenced focused on bank financing the reality is that an acquisition financing via ABL finance provides a higher margin level on these assets. Typically those margins are 90% of receivables, significant inventory advances subject to appraisal / valuation, and financing for liquidation value of fixed assets.


More often than not firms in the SME sector that want to buy another business can generate no interest in Canada from ' private equity ' or ' VC' firms, as those firms focus on larger transactions.


So, no money down? The jury might still be out on that one, but we do assure clients that an ABL loan is a great financing alternative when you are looking to purchase another firm for competitive reasons.


Speak to a trusted, credible and experienced Canadian business financing advisor when you want to further your acquisition finance objectives.

7 Park Avenue Financial :
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 416 319 5769

Office = 905 829 2653

Email = sprokop@7parkavenuefinancial.com

Click here for 7 PARK AVENUE FINANCIAL

http://www.7parkavenuefinancial.com


Business financing for Canadian Firms , specializing in working capital, cash flow, asset based financing , Equipment Leasing , franchise finance and Cdn. Tax Credit Finance . Founded 2004 - Completed in excess of 100 Million $ of financing for Canadian corporations .

' Canadian Business Financing With The Intelligent Use Of Experience '

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.

Stan Prokop