Rich Olsen, MD of Pegasus Funding Solutions, uncovers an unexpected consequence for SME owners focused on acquisition. Read on to discover how many business acquisitions fall at the first hurdle, and what to do to avoid this happening to you.
I’ve worked with many ambitious business owners planning acquisitions. They often share one trait: they’re in a hurry. They see an opportunity that they don’t want to lose and put time, energy and effort into making it happen.
Why acquisitions fail before they begin
Many owners are walking straight into a problem that they don’t see coming. They rush to agree details and reach that essential Heads of Terms milestone. Then they are met with the shocking realisation that they can’t get the funds they thought were guaranteed.
Agreeing a deal before the funding position has been properly understood is one of the most common and costly pitfalls I see.
Enthusiasm is essential when you’re a busy SME owner looking to grow. But if you invest time and money on a deal without testing what you can realistically borrow, you’re heading for a fall.
The danger of agreeing Heads of Terms too early
Here’s the problem: full disclosure and commercial background scrutiny usually only happens when Heads of Terms have been signed and completion payments have been agreed.
Shock settles in when owners discover that the funding solutions they were counting on just aren’t there. And if there is no additional cash available to bridge the gap, the deal stalls or collapses altogether.
Think about the journey you’ve taken to get to that point. You’ve invested time and resource and paid professional fees. Now you have to muster the energy to renegotiate. But you’re now in a weaker position: sellers already have a figure in mind and both sides have expectations.
What concerns me most is that this sometimes happens because certain strands of acquisition advice actively encourage it. There are courses and programmes that promote confidence first and funding later, suggesting that finance will “fall into place.”
In my experience, that is a high-risk strategy and one that I would never recommend.
How we approach acquisition finance
At Pegasus Funding Solutions, we take the opposite approach.
We speak to the market early and we map out realistic funding options. We understand the likely appetite from lenders before you commit time and money to progressing an acquisition.
Even before your first serious conversation with a potential target, you’ll have a clear idea about what is achievable. You can direct your efforts towards genuinely viable opportunities, confident that your time and resources are not going to be wasted.
So here’s my advice to you if you’re thinking of dipping into the world of acquisition.
Ask early.
Test the market before you go too far.