YOUR COMPANY IS LOOKING FOR BUSINESS FINANCE TO PURCHASE A BUSINESS
ACQUISITION LOAN SOLUTIONS / FINANCE AN ACQUISITION FOR YOUR TARGET COMPANY
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Financing & Cash flow are the biggest issues facing business today
ARE YOU UNAWARE OR DISSATISFIED WITH YOUR CURRENT BUSINESS FINANCING OPTIONS?
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7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Oakville, Ontario
L6J 7J8
The art of business acquisition lies not in finding a company to buy, but in discovering hidden potential others have overlooked.
7 Park Avenue Financial originates business financing solutions for Canadian Businesses – We offer Business Acquisition Financing and working capital solutions – Save time and focus on profits and business opportunities
7 Park Avenue Financial: “Canadian Business Financing with the intelligent use of experience”
FINANCING THE BUSINESS ACQUISITION
Considering buying a business in Canada? How to finance a business acquisition is a question clients always ask.
When it comes to financing a small to medium-sized business, our clients quickly find they don’t have the resources of those Bay Street guys, that high finance parlance of ‘M&A’ … mergers and acquisitions—so, financing a takeover and managing the acquired company? Let’s dig in.
Problem-Agitate-Solution (65 words): Acquiring a business without proper guidance can lead to devastating financial consequences. Many Canadian entrepreneurs struggle with valuation uncertainties, hidden liabilities, and complex negotiations. Through structured analysis, professional guidance, and strategic planning, you can transform these challenges into opportunities, ensuring a smooth transition while maximizing your investment potential.
DID YOU KNOW?
- 70% of business acquisitions fail to meet expectations
- The average business acquisition process takes 6-9 months
- 45% of failed acquisitions are attributed to poor due diligence
- 33% of business acquisitions use seller financing
- Canadian M&A market saw $158B in deals (2023)
FINANCING THE SME BUSINESS ACQUISITION
But it just might not be as complex as you think. Here’s why. Of course, those more significant transactions in Canada are handled by banks, merchant banks, public offerings, etc.
But the most significant part of the Canadian economy is the small to medium enterprise area (‘SME’).. ‘ small business ‘. You guessed it…every day, these businesses are bought and sold successfully as part of an acquisition deal in completed transactions.
WHAT IS YOUR STRATEGY IN BUYING A BUSINESS
So, when buying another company, you need a ‘strategy ‘ behind your transaction. There might be many reasons why you are considering such a deal; one might be simply diversification, which typically lowers your overall business risk.
In some cases, you might benefit from classic ‘synergies,’ such as more branding of your products and services, additional product and service lines, etc.
Financing an acquisition with debt, appropriately done, maximizes return on investment. Proper due diligence is key - let the 7 Park Avenue Financial team help you take that proverbial ‘deep dive’ into the business's financial statements regarding asset valuation and the overall financeability of your transaction.
Key business assets must be evaluated around issues such as repair and maintenance and potential upgrading. Here are some statistics on the breakdown of the Canadian SME economy, often noted as the backbone of business in Canada—click here for the info.
WHY BUY A BUSINESS?
Numerous advantages come with buying a business.
The ability to take over a company that is generating cash and profit (hopefully!) certainly removes the significant challenge of building a brand and reputation from scratch. Reputation is everything in today’s competitive environment, and the ability to buy into an employee and customer base is a positive motivator.
Naturally, that ‘established base’ comes with a price that can be viewed as expensive and the task of taking on debt financing.
Suffice to say that Canadian business banks and other commercial or alternative lenders are more comfortable with businesses that are established and have a track record as opposed to financing a start-up and waiting for ‘organic growth’.
In many cases, you can lower costs and increase revenues - reducing costs and overheads while increasing revenues is a classic business merger and acquisition strategy.
In certain situations, say a manufacturing company, efficiencies can be realized. Unfortunately, this sometimes comes at a ‘human cost’ as downsizing is expected in this area of mergers and acquisitions.
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Of course, not all businesses might be doing well if they are a target for an acquisition. Many undervalued or struggling companies in the current environment might have desirable selling prices.
THE ROLE OF SELLER FINANCING IN BUSINESS ACQUISITIONS
Sometimes, the seller may wish to participate in financing your purchase as part of a merger or acquisition.
This classic ‘vendor takeback’ strategy is a key way in which many businesses are financed, and that helps minimize the equity financing part of the deal in your overall sources of financing plan.
As part of your due diligence the ability to determine why a business if for sale is crucial - Currently, thousands of companies are up for sale due to retirement and succession plans - but it’s essential to address issues such as profit, a business model that performs well, or the potential need for new assets.
The ability for the buyer and seller to get creative in structuring a seller finance component is unlimited. Seller notes can be funded via staggered payments or above-market or below-market interest rates, and they are a great way to include one more component in your overall financing structure.
In many cases, the need for a non-compete agreement needs to be addressed with the seller as a part of the letter of intent to purchase a business.
HOW TO FINANCE A BUSINESS ACQUISITION
Acquisition financing structures you might employ for a financing structure when buying a business and financing an acquisition, including the potential need for a recapitalization
Asset-based loans - An asset-focused leveraged finance solution that focuses on accounts receivable, inventory, and fixed asset and real estate financing - ABL Finance solutions are great ways to acquire a business
Term loans/lines of credit
Franchise loans
Cash Flow Loans - aka ‘Mezzanine Loans’
Sale-leaseback strategies
Government business loans - The government loan to buy a business in Canada is a solid solution for smaller transactions and franchises
INTEREST RATES AND THE COST OF FINANCING
Interest rates will vary depending on the amount and type of financing you require and the size of the transaction.
While the interest rate is always important in any type of financing, it must be balanced with access to capital versus the cost of capital.
Some entrepreneurs buy a franchise as part of their ‘existing business’ purchase strategy. That comes with a proven business model and the guidance of the franchisor.
Typically, buyers will have a focused experience and interest in the franchise they are buying into.
MANAGEMENT BUYOUTS
Often, current management may wish to buy the company from the owners as part of an acquisition finance strategy. This is typically called an MBO…management buyout.
They often put some new equity into the company, and in most cases, asset refinancing strategies are employed for such business acquisitions. Financing is often structured with an appropriate mix of debt and equity to facilitate the transaction and a vendor take-back / seller note if possible.
3 Uncommon Takes on buying a business :
- Reverse due diligence: Having sellers evaluate buyers' operational expertise
- Employee-first acquisition strategies: Prioritizing talent retention over immediate profits
- Cultural archaeology: Deep-diving into company culture before financial metrics
KEY TAKEAWAYS
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Strategic analysis determines business compatibility and growth potential
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Financial modelling reveals true business value beyond surface numbers
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Due diligence investigation protects against hidden liabilities
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Integration planning ensures the smooth operational transition
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Deal structuring impacts tax implications and risk allocation
CONCLUSION
Successfully buying a business and completing satisfactory financing with financing solutions is a unique area of business financing when it comes to acquisition financing lenders.
Business owners must have a solid rationale and a strategy for contemplating these types of transactions.
Need help to finance a business acquisition?
If you’re looking for real-world expertise in buying a business or merging with one call 7 Park Avenue Financial, a trusted, credible and experienced Canadian business financing advisor with a track record of success who can assist you with your needs.
Let our team work closely with you and make it Job #1 to help intelligently structure and finance the acquisition as a third party with your goals in mind regarding financing options.
FAQ: FREQUENTLY ASKED QUESTIONS AROUND BUSINESS PURCHASING
HOW DO YOU VALUE A BUSINESS
Business owners might choose to employ a qualified third party to help with company valuation and financial health.
The focus is on how the business makes money as well as the overall health of the balance sheet. Different industries are valued in other ways - that might be multiples of earnings, cash flow, the value of the business's assets, and taking a hard look at those ‘intangibles such as goodwill, contracts, customer lists, brand and reputation. Whether a company is capital-intensive or services-based also reflects a different focus on valuation.
HOW DO YOU FINANCE A BUSINESS ACQUISITION
Business acquisitions are financed through owner equity, also referred to as a down payment, and combinations of seller financing earnouts, leveraging a business's assets, and combinations of bank term loans or asset-based solutions from alternative commercial lenders. Certain government loans, such as the Canada Small Business Financing Program, are excellent ways to fund an acquisition.
Understanding acquisition financing options
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Traditional bank loans
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Seller financing opportunities
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Private equity partnerships
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Government-backed programs
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Asset-based lending solutions
How does business acquisition create immediate value?
What advantages come with buying an existing business?
Buyers need to strategize to ensure the purchaser or acquiring company purchases the right assets, while thoroughly analyzing financial statements of the target firmand valuations to identify potential liabilities when there are business combinations.
How can acquisition accelerate business growth?
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Market share expansion
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Operational synergies
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Diversification benefits
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Enhanced capabilities
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Economies of scale
What makes business acquisition better than starting from scratch?
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Reduced startup risks via buying target companies
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Immediate market position
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Existing infrastructure
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Proven profitability via business valuation and due diligence
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Established relationships and potential intellectual property
What initial steps should I take when considering a business acquisition when companies combine or buying a business?
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Research target industries
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Determine investment capacity
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Assemble professional team
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Define acquisition criteria
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Review market conditions
How do I protect myself during the acquisition process?
What’s involved in post-acquisition integration?
What financing options exist for Canadian buyers?
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Traditional bank loans
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SBL programs
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Seller financing
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Private Equity
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Hybrid solutions
What common pitfalls should I watch for?
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Overvaluation risks
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Hidden liabilities
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Integration challenges
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Cultural misalignment
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Cash flow issues
What makes a business acquisition successful?
How do I determine the right purchase price?
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Industry multipliers
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Asset valuation
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Cash flow analysis
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Growth potential
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Market comparables
What role do professionals play in the process for the buyer or acquiring company?
