Growth by acquisition is a sound strategy for many small businesses but having the necessary capital to invest can be the sticking point. Where a business is unable to fund from its own resources, acquisition finance can be raised to complete the transaction.
Is acquisition finance relevant to me?
Whether you’re planning to expand in your own sector or purchasing a business in another, acquisition finance could bridge the gap between you and the business you’re acquiring.
What will lenders be looking for?
Small businesses generally operate within tighter financial constraints than their larger counterparts which can make the risks to an investor significantly higher. When seeking acquisition finance to support a growth strategy, most lenders will assess:
- Trading track record
- Business expertise of the product and industry
- Key people in the management team
- Ability to repay the finance
- Available collateral
The proposed business fit
Funding for different acquisitions
Most acquisition opportunities will be judged on their own merit with funding available to support a number of growth strategies, including:
- Buy and Build
- Management buy-outs (MBO)
- Buy-in management buy-outs
- Management buy-ins
The buyer may be an established business or a special purpose vehicle (SPV), newly formed to purchase all or part of the assets or shares of the target company.
Is there more than one type of acquisition finance?
Funding for an acquisition is a form of debt finance and is predominantly secured against the assets of the business. The main types of acquisition finance include:
- Bank loans
- A line of credit
- Unsecured loans
- Private equity investment
“I was the lead-in investor and required additional funding to complete the acquisition. Some of this was found from within the client’s existing senior management team, and Pegasus obtained the additional £100,000 required via two investors from its Business Angel network. I recommend Pegasus.”