Smart Ways To Finance A Management Or Leveraged Buy Out - SME LBO 101!
OVERVIEW – Information on best strategies for a management buyout funding transaction. Buy out finance leverages assets and allows mgrs or entrepreneurs the ability to finance a business purchase creatively
Buy out finance interestingly enough used to be known (in the old days) as bootstrap acquisition financing. While ' bootstrap' is a commonly used term today management buyout funding has upgraded its name to ' lbo ' - aka ' leveraged buyout '.
Enough with the terms, right?! We're examining how business owners, mgrs, and entrepreneurs in general can utilize the financing to acquire a business. Let's dig in.
While it's a common belief that in general a company would prefer to avoid ' debt ‘, used properly, and using the assets of an existing business a solid acquisition opportunity emerges that otherwise might not be possible.
Even more interesting is your ability to maximize the true value of the assets you are acquiring, in effect ' leveraging' them to finalize your acquisition. While we see a lot of movies around Hollywood’s take on LBO's and the corporate raider the true reality is that such financing is a solid tool in the Canadian SME marketplace, providing an alternative to acquire and grow businesses.
Why do business people consider management buyout funding? Clearly it's to maximize on opportunity. Current low interest rates, available credit from banks and especially non bank lenders, and the ability of the new owners/mgrs to grow businesses and profits.
The essence of this type of financing is all about the assets in the business being acquired, as well as the new owner’s ability to generate cash flow from those assets. In effect the acquisition is paying for itself!
Naturally a fine balancing act occurs given that the amount of new debt taken on also has the ability to bring on financial distress if not managed properly. New owners of the business also have to ensure they have the ability of course to acquire new assets or technology that might be required.
What do you need to cover off when it comes down to the basics of buy out finance? Issues include the fees involved that come from financiers or advisors, the amount of interest you'll be paying, and the types of debt that will reside on the balance sheet when the transaction is completed. Almost all businesses need revolving credit lines, and they must be able to meet the needs of the business.
Who can assist you in financing a mgmt buyout? Typically its Canadian banks, non bank commercial finance firms, Asset based lenders, and mezzanine finance companies. Naturally all of these will have different rates, terms and structures. Consider seeking out a trusted, credible and experienced Canadian business Financing Advisor with a track record of success
who can assist you in making management buyout funding a success around your business acquisition.
Stan Prokop - founder of 7 Park Avenue Financial –
http://www.7parkavenuefinancial.com
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years - Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing.
Info & Contact Details :
7 Park Avenue Financial
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8
Direct Line = 416 319 5769
Office = 905 829 2653
Email = sprokop@7parkavenuefinancial.com
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
