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Advice for acquisition c. £1M

Would any of you know some viable/recommendable ways of funding an acquistion?

Hi everyone,

I have a question about funding an acquisition which is something new to me as an FC.

Funding/context

I would like some advice about funding an acquisition as the co I work for is keen to purchase another co @ c. £1M selling price. To give you some idea of the size of the acquiring co (purchaser), the cashflow of the acquiring co is c. £0.6M and growing, with c. £1M debtors, c. £2M inventory at any given time.

Types of funding suggested

On first learning of the intention to acquire, I had an informal chat with my employers bank customer relationship manager. What he advised is that in addition to an ID facility we have running, we could finance via inventory or finance via a cashflow based loan. The inventory and cashflow based funding methods are new to me, so I was wondering if some AW members may be able to explain these types of funding for me.

Alternative funding

Are there any good alternatives to using the debt instruments mentioned above? Would it be difficult to find keen equity funders for non-controlling interests, given that the acquiring co has a highly credible management team and the acquisition target is very profitable?

 

Any thoughts would be very welcome.

 

Regards,

RA

 

Replies

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24th May 2018 23:58

This is specialist advice beyond the scope of a public forum.

Go see your company’s accountants. They will either have a corporate finance partner who can take you through this and suggest alternatives or they will have someone they recommended who can act in this capacity.

If they have neither, PM me and my firms CF partner can help. (Initial chat will be a FOC, but any actual work would be chargeable)

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25th May 2018 10:02

I financed a large acquisition when in industry by utilising invoice factoring. As there was a strong cash flow/profit we managed to get rid of the factors' advance within 3 years

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31st May 2018 12:46

I have dealt with a few merger, acquisitions and sales over the years.
You don't state your company's trade or turnover, but here are some preliminary observations:
1. Invoice discounting/factoring is a good source of ready funds, especially at the level of debtors you mention (too high?). Add to that improved credit control, if possible!
2. Stock control may also be necessary, and could improve cash flow -- consider "just in time" ordering if practicable.
3. You will no doubt need a comprehensive purchase/sale agreement, with detailed warranties etc, to include a delayed purchase payment, depending upon turnover/profit targets, etc. This will reduce the initial funding requirement.
4. Consider a share exchange, which will necessitate realistic valuations of both companies.
5. Consider going outside for investors, eg Private Equity company,EIS investment, etc.

There will no doubt be much more, but with limited information, that is enough to be getting on with! As stated, your accountants should help, and you will need a good corporate lawyer.

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