One Size Fits All Financing Doesn’t Work In Mgmt Buyouts & Acquisition Finance


OVERVIEW – Information on management buyouts in Canada. Acquisition funding via a leveraged or traditional finance solution requires addressing several key issues

Management buyout financing and acquisition funding is all about successfully engineering the executing on the finance solution – and we can pretty well guarantee our clients that ‘ one size doesn’t fit all ‘! Let’s dig in.

These opportunities also aren’t always coming up so the ability to buy a firm you’re associated with, or to capitalize on a business opportunity is often associated with the right timing.

It’s also very easy to get ‘ stuck ‘ on a transaction such as this, as a myriad of non financial issues also come up – employees, customers, strategies, valuation, and on it goes ..

In some cases you might be looking at purchasing a franchise directly from the franchisor, or perhaps a current owner who wishes to sell. The Canadian franchise industry can only be called explosive and it plays a key role in the economy of Canada. The ability to ‘partner’ with a franchisor successfully helps guarantee a good acquisition. Some very specialized financing can help complete such an acquisition.

Let’s examine some practical tips and strategies for getting ‘ unstuck ‘ on a transaction such as this.

Obtaining seller financials is key to any sort of mgmt buy out or leveraged buyout. Key point : Many alternative finance solutions are available to buy a business, but they really on a decent level of financial transparency on how the business is doing, what the actual value of assets is, etc. The ability to distinguish between internal and external financials, as well as obtaining current interim financials is key.

Purchasers and your financiers will want a proper representation of specific assets and liabilities on the balance sheet. Great care should be taken in qualifying key assets such as accounts receivable… from a simple point… are they collectible?!

Naturally there is no guarantee that any existing or future A/R item will in fact be collectible, and no one is going to guarantee that for you. Some solid credit checks on the quality of the A/R base is highly in order, as well as looking at historical payment trends of the client base. You also want to ensure there is no right of set off against the receivables, and it certainly not uncommon for us to see the A/R as often the largest asset on the balance sheet.

A great strategy for Purchasers contemplating a leveraged management buyout funding is to make some sort of agreement on the ability to ‘ rejig ‘ the final price subject to A/R collectability. Naturally owners of the company might be reluctant to do that.

Is there anything trickier than ‘ inventory ‘ with respect to classifying quality and true value of inventory, which might of course be raw materials, work in process, or finished goods. Make a solid effort to quantify the quality of the inventory you are purchasing with respect to issues such as obsolescence.

Plant and equipment should always be appraised in some manner on funding a management buys in. This quite frankly protects all parties, and we urge clients to complete an appraisal that includes some component of fair market value, orderly liquidation value, and forced liquidation. Those numbers will vary significantly in any appraisal and play a key role in the way in which assets are financing in a real management buyout. It goes without saying of course that the purchaser should ultimately be comfortable with the quality and condition of the fixed assets on the balance sheet they are contemplating financing.

Don’t forget also to look any leases or contracts that might be in place via the current business owner. You will want to make sure these are assignable to yourself in the event of a completed sale.

How then is acquisition financing most commonly achieved in Canada.
Solutions include:

Govt guaranteed loans

Asset based lenders

Private equity funding

Canadian commercial chartered banks

Business Development Corp term loans

A great transaction occurs when you have a company that is both profitable and has key assets that are financeable, i.e. the receivables, inventory and equipment we highlighted earlier. That isn’t always the case, and as we noted, every business and industry is different .Speak to a trusted, credible and experienced Canadian business financing advisor for assistance in successfully completing you buy in via a leveraged funding.


Stan Prokop
– founder of 7 Park Avenue Financial
Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 10 years – Completed in excess of 100 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info & Contact Details :
http://www.7parkavenuefinancial.com

7 Park Avenue Financial
South Sheridan Executive Centre
2910 South Sheridan Way
Suite 301
Oakville, Ontario
L6J 7J8

Direct Line = 905 302 4171

Office
= 905 829 2653

Email = greg@7parkavenuefinancial.com

‘ Canadian Business Financing with the intelligent use of experience ‘

ABOUT THE AUTHOR
Stan has had a successful career with some of the world’s largest and most successful corporations.
Prior to founding 7 Park Avenue Financial in 2004 his employers over the last 25 years were, ASHLAND OIL, ( 1977-1980) DIGITAL EQUIPMENT CORPORATION, ( 1980-1990) ) CABLE & WIRELESS PLC,( 1991 -1993) ) AND HEWLETT PACKARD ( 1994-2004 ) He is an expert in Canadian Business Financing.

Stan has over 40 years of business and finance executive experience. He has been recognized as a credit/financial executive for three of the largest technology companies in the world; Hewlett-Packard, Digital Equipment and Cable & Wireless. Stan has had in depth, hands on experience in assessing and evaluating thousands of companies that are seeking financing and expansion. He has been instrumental in helping many companies progress through every phase of financing, mergers & acquisitions, sales and marketing and human resources. Stan has worked with startups and public corporations and has many times established the financial wherewithal of organizations before approving millions of dollars of financing facilities and instruments on behalf of his employers.

Stan Prokop

7 Park Avenue Financial
Canadian Business Financing