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Buying a business in Canada. Talk About Temptation! We’re talking about acquisition financing solutions purchasing an existing business that's already profitable, or, on the other hand a firm that is challenged and due for your turnaround. In both cases current owners might be motivated to sell, but for different reasons!



How do firms for sale get themselves in trouble? Often it's lack of funding and too much existing debt, as opposed to operating problems which are a whole different kettle of fish.


It might be an obvious solution to use your own funds in financing a business acquisition. Those funds typically come from personal savings and investments, or equity lines of credit on homes, etc. However, as a business purchase gets larger in size it is less probable you will use all or a large part of your personal savings; therefore a combination of some owner investment, as well as business financing and possible participation from the seller (seller financing ) will most likely be the route you choose to pursue. That combination certain allows the buyer to consider larger transactions.

AT 7 Park Avenue Financial we often receive queries around the concept of ' 100% Financing ' in financing the purchase of an existing business . In general, this does not exist in the Canadian marketplace ( we can't speak for our more risk-oriented friends in the U.S. ! ) Both sellers of companies, as well as commercial lenders, want to see the proverbial ' skin in the game ', demonstrating the purchaser's commitment to the transaction.



Some immediate issues to look into are arrangements with current lenders. This is often the scenario of working capital being extremely limited due to the current financing structure.



There are numerous ' valuation techniques ' in business acquisition loans when establishing the right price for the business. If a business is already losing money and has poor or negative cash flows it's time to take a hard look at the assets. There is no perfect method for establishing the value of the business you are buying, and by the way, profits are not the same as cash!

A good valuation strategy is to spend the proper amount of time ' normalizing ' the financials of the business. That process allows you to take out or add in expenses not currently reflected in the business, as well as looking at how revenues are generated and recognized. Review both past sales and profits as well as your ability to estimate reasonable going forward projections. For larger transactions many firms turn to ' CBV's ' - Chartered business evaluators for valuation advice for the right price around the finance to purchase a business.



The good news about existing assets is there are numerous financing strategies to assist in finalizing a transaction with the right business acquisition loan.


These solutions include:



The Govt of Canada Guaranteed Small Business Loan (It finances assets and leaseholds and has a new maximum borrowing cap of $1,000,000.00



Sale Leasebacks - Equipment financing and leasebacks preserve cash and allow you to purchase new or used assets with minimum cash outflows - It is a solid way to match the useful life of assets with cash outflow



Asset Based Bridge Loans and Business Credit Lines - Leveraging the assets of a business allows the buyer to consider a commercial asset based lender to facilitate financing the transaction. Not only does this minimize the amount of funds you have to invest personally it allows you to capitalize on the true value of the business you are looking at ; those assets typically able to be leveraged include fixed assets, real estate, inventory, and receivables.


Seller Financing - At 7 Park Avenue Financial numerous we find that numerous new clients looking to  buy a business do not consider the vendor financing scenario. This is a very viable component of your financing package and the amount of the loan from the seller, as well as the terms, can vary significantly. Suffice to say that the seller finance component also reduces the amount you will have to finance, which is positive from both purchaser and business lender perspectives.

In many cases the seller will be more open to sharing very detailed and critical information on the business as the seller has a vested interest in closing the deal, as well as preserving the legacy and reputation of the business. Since the seller is not a commercial lender the terms and rate structure around the ' VTB ' are often more generous than could be obtained from banks or finance companies. It should be noted that traditional banks and finance firms will always insist on their financing security ranking ahead of the seller finance component! Nice try seller!!

It would be unusual for the seller component to be larger than what is financed through external commercial lenders but it still is sometimes a good portion of the final transaction.
We can assume that almost all sellers will want full disclosure from the buyer on credit history, business experience, future plans for the company, etc, given they have a vested interest, in you, their ' new partner ' for at least a period of time.



Naturally the quality of the assets is key, whether they are fixed ' hard' assets or the assets that represent working capital components - i.e. accounts receivable & inventories. Key point - book values don't tell the true value of the assets, and in some cases you might need to make an investment in new technology - i.e. computers/software, etc (Equipment Leasing is almost always the best way to acquire tech assets given their cash outflow flexibility)



Service companies that have few assets are always more challenging to finance given lack of hard assets.



While new owners will almost always be required to put some of their own cash into the business many financing solutions will also drive the minimum and maximum amount they will need to put up. Asset based lending strategies will often help minimize owner equity investment.



While Canadian chartered banks are a great source of financing for acquiring existing profitable businesses they are somewhat more than reluctant to finance firms with obvious financial challenges. Banks will almost always focus on a business plan, mgmt experience, the balance sheet and owner personal financial statements.

Most purchasers of an existing business will often experience difficulty in accessing total bank financing for the transaction. While your business plan and future cash flow projections might be impressive the banks have a total focus on ' assets ' and ' cash flow '. They will also place a large reliance on business experience in the industry in question and will be looking for borrowers to demonstrate good personal credit history combined with a reasonable net worth.

On certain transactions you may have to, or choose to, assume the debt of the existing company as part of the financing package. This typically is more advantageous to the seller than the owner for liability type reasons and should be reviewed carefully if this is a part of your strategy. Suffice to say current lenders must also approve the buyer for any assumption of debt.



While it is not a ' direct ' bank loan per se, many purchasers of small businesses should consider the Government of Canada Small Business Loan program. This program also works extremely well on franchises. While there are some minimal conditions around the loan program, administered by Industry Canada, the program offers good interest rates, flexible repayment, and minimal personal guarantees. All of those should be very attractive to the potential borrower.

Prospective purchasers should not forget that a business can be purchased, from an accounting and tax and legal perspective as a ' share sale ' or an ' asset sale '. Purchasing a company from a share sale perspective entails certain risks as you may be acquiring hidden liabilities. Also buying a business has certain legal fees and miscellaneous costs associated with your transaction. These should be included in your cash flow assumptions, and they might include expenses such as appraisals, legal fees, business advisory fees, etc.

TRANSACTION CLOSED! WHAT'S NEXT?

OPERATING THE BUSINESS EFFECTIVELY VIA THE RIGHT TAKEOVER FINANCING STRATEGIES

In the rush and stress to close an acquisition we find that many prospective purchaser don't give full consideration to the financing of ongoing day to day operations. While it is not impossible for a firm to be self-financing if its ' cash conversion cycle ' is less than thirty days it is certainly the most unlikely of circumstances. If your firm does not have a positive cash flow management can undertake numerous ways to refocus efficiencies - that might include improving days sales outstanding and focusing on better inventory turnover, and better payables management with the risk of alienating key suppliers.

That need for constant working capital and cash flow replenishment will often focus the business owner and financial manager to look at a business line of credit.

The business line of credit is the cornerstone of operational financing. These revolving facilities provide cash as you maintain your investment in accounts receivable and inventory. Naturally service based industries do not have to concern themselves over the inventory component on the balance sheets of many industrial companies.

SOLUTIONS FOR THE BUSINESS LINE OF CREDIT REQUIREMENT

Various subsets of asset based lending provide solution funding for ongoing day to day operations post the acquisition phase. These solutions include:

Asset Based Non-Bank Lines of Credit - These credit lines are based on all the collateral of the business and usually imply a larger amount of financial leverage. These borrowing facilities are usually a bridge to getting a company back to traditional bank financing and don't come with the often more severe covenants and ratio requirements required by our chartered banks.


Invoice Factoring / Confidential Receivable Financing - A/R financing strategies are probably the most popular cash flow solution in current times ; they allow a business to cash flow their sales immediately and assist in avoiding the waiting period to collect receivables which can easily run anywhere from 30-90 days - At 7 Park Avenue Financial we will often recommend Confidential Receivable Financing, allowing you to get all the benefits of factoring as well as being able to bill and collect your own invoices


Equipment Financing / Sale-Leaseback Equipment leasing and leaseback strategies minimize cash outflows for the purchase of new and used equipment, including technology finance requirements



Purchase Order Financing / Inventory Loans - P O Finance solutions allow your suppliers to be paid directly by the commercial lender for large orders and contracts that your firm might otherwise not be able to finance based on the current working capital structure. Inventory financing can be a standalone finance solution or combined with various a/r and working capital solutions such as factoring.


Financing Refundable Tax Credits - For firms in Canada that utilize the federal government SR&ED program companies can cash flow their refundable credits via a SRED loan, allowing the company to recoup valuable r&d capital through the programs refundable tax credits


Supplier Credit - Many purchasers neglect to investigate the potential of supplier financing which generates cash flow given that extended payment terms delay the outflow of cash


For purchasers and businesses not focusing on a larger transaction that might have the benefit of private equity, mezzanine financing, venture debt etc it is important to consider all financing options available. Various combinations of alternative finance and traditional Canadian bank lending must be investigated.

In any type of business purchasing leverage is the ultimate double-edged sword. A solid financing package will ensure you are not over-leveraged with debt while at the same time assuming you will have operating financing facilities in place. It is exceptionally difficult to recover from over leverage in any environment, especially when sales are declining.


The bottom line? When buying an existing profitable or challenged business have a strong understanding of your opening balance sheet and the proper mix of current assets and debt. Understand the value of your hard assets and ensure you have financing in place to cover working capital needs.


Looking for a loan to buy a business in Canada? Seek out and speak to a trusted, credible and experienced Canadian business financing advisor to assist you in the financing to buy an existing 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.


Click here for the business finance track record of 7 Park Avenue Financial







Stan Prokop
7 Park Avenue Financial/Copyright/2020

Buying A Troubled ( Or Successful !) Company In Canada? Finance Strategy 101

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