It’s a brand-new year and what better time to plan your business growth? You may have been planning to upscale your business for a while but are struggling to figure out where the necessary capital will come from for you to invest.
If you are planning your business growth by acquiring another business, it can be difficult to see how spending so much time and money on the process can be beneficial to your business right away and how you can continue to grow while your mind is on other things.
Firstly, what is acquisition finance and how can it help me grow my business?
Acquisition finance is a type of structured finance specifically used in the acquisition of another business. For example, if you were an engineering business looking to buy out your competition, this is where acquisition finance could help. Along with the acquisition of the business, your company could benefit from the increased size of operation along with acquiring all or some of the assets or shares in the acquired company.
Some of the ways business acquisition finance can help your business to grow are; increasing your market share by bringing access to a wider customer base or new region, increasing buying power, gaining more staff and additional skills to enhance your knowledge of the industry, diversification of products, services, technologies and markets, additional turnover and improved profit margins and also providing a cheaper option for buying new products and services, rather than developing them yourself, which can be a costly process.
How can I finance an acquisition?
It is unlikely that many businesses have the capital upfront to acquire a new business and that’s where acquisition finance comes in. Acquisition finance can help your business to grow by closing the gap between your available funds and the cost of the business you are acquiring. It’s possible to choose multiple ways to finance your acquisition, let’s look at the options available to you:
- A cash acquisition deal. Primarily used in situations where the company being acquired is smaller and has lower cash reserves than the company acquiring it. In a cash acquisition deal, shares are exchanged for cash. This would require the company making the acquisition to have the required levels of cash to complete the purchase.
- Selling of shares/ equity. This option involves a proportion of shares/ equity being sold to another party to raise the necessary funds to complete the purchase. This option is often desirable when debt financing is unachievable.
- Deferred consideration. This option allows the buyer to pay part of the purchase price after the closing of the deal and the acquisition of the business, but it often depends on the future financial performance of the target company.
- Business acquisition finance. Considered the most inexpensive method, acquisition finance provides finance structured in many ways and therefore a popular option for lots of businesses. Asset-backed finance is one example, where funders or banks will lend funds based on the assets of the target or existing company.
How speaking with structured finance experts can help with acquisition finance.
It can be overwhelming to take the leap into the unknown but now is as good a time as any to take your business growth to the next level. If you are looking to acquire another business but don’t have the funds available for the up-front cash contribution, then acquisition finance could be the ideal solution for you.
PMD supports strategic business growth and has a wealth of knowledge in acquisitions, takeovers, and buy-outs, not to mention access to over 150 lenders, giving us the ability to offer you flexible finance solutions whatever your circumstances.
Since the establishment of our Structured Finance Solutions division, PMD has supported over £100m of transactions and provides firm competition in the alternative finance market. Our dedicated team of advisors are here to help you every step of the way and take the overwhelm out of acquisition.
Speak to our specialists at PMD.
If you want to take your business to the next level and grow without limits, get in touch with one of our helpful and friendly advisors today and see how PMD can help you in your business acquisition journey.