Business Acquisition Finance: What do you need to know?

Written by James Dutton - Head Of Asset Finance

What is business acquisition finance?

Acquisition finance is funding used to purchase an existing business, whether that's the whole company, a controlling stake, or specific assets and trade. Rather than needing to fund the full purchase price from cash reserves, a business can use one or a combination of finance products to complete the transaction.

Acquisition finance can be used for a straightforward trade purchase, a management buy-out (MBO), a management buy-in (MBI), or to acquire a competitor as part of a wider growth strategy. Most funders will look closely at the trading history and cash flow of the business being acquired, since this forms the basis of how any borrowing will be repaid going forward.

How does business acquisition finance work?

Unlike a standard business loan, acquisition finance is rarely a single product. Instead, it's usually made up of several elements working together, structured around the size of the deal and the financial strength of the target business.

A typical acquisition might combine:

• A secured loan, using assets or property to fund the larger portion of the purchase price
• Asset-based lending, borrowing against assets already held within the target business
• An unsecured business loan, used to top up funding where no further security is available
• Deferred consideration, where the seller agrees to be paid part of the purchase price over time

Once the target business, purchase price and your own contribution have been established, we can approach our panel of lenders on your behalf and structure the funding to fit the deal.

What can business acquisition finance be used for?

Business acquisition finance is most commonly used to fund:

• A trade purchase of another company or competitor
• A management buy-out (MBO), where existing managers acquire the business
• A management buy-in (MBI), where an external manager or investor acquires the business
• The purchase of specific assets or trade from another business, rather than the company as a whole

What do funders look for?

Because there's no fixed structure for acquisition finance, lenders will assess each deal in detail before agreeing to lend. As a general guide, most funders will want to see:

• At least 12 months' trading history in the target business
• A clear business plan setting out the rationale for the acquisition
• Recent accounts and management information for the target company
• An indication of how much of the purchase price the buyer can fund themselves
• Details of any assets within the target business that could support borrowing

What are the benefits of business acquisition finance?

• Grow your business without needing the full purchase price upfront
• Preserve working capital for post-acquisition trading
• Funding can be structured around the target business's own cash flow
• Access to a wide range of finance products under one application
• Suitable for trade purchases, management buy-outs and management buy-ins
• Deferred consideration from the seller can reduce the amount that needs to be borrowed
• Flexible repayment terms to match affordability

Applying for business acquisition finance

MAF Finance Group can compare offerings from a wide range of banks and alternative funders to structure a funding solution around your specific acquisition.

To learn more about our finance solutions, fill out the form below. If you would like to speak to us directly, call us on 0115 958 6872, and a member of our team will be happy to speak to you. Alternatively, email us at [email protected].