7 questions about financing ( Fincial experts secretes )
FUNDING-Many buyers consider the financing as a necessary evil. That is unfortunate, because with a little financial shrewdness is much more possible. Funding in 7 questions.
1. FUNDING, WHEN I THINK?
Decide at an early stage in your financial space. This prevents you are looking for companies that you do not get funded. Mbi candidates have sometimes exaggerated expectations of their capabilities. They think it 'just' a company to take over with a turnover of 30 million euros and one hundred employees, preferably also without input from its own resources. Other prospective buyers underestimate their true potential and think that an acquisition of over one million euro for them to play. We have experienced that acquisitions of several million euros to finance are often good for a MBO or MBI candidate.
During the search phase the little sense for a bank to be correct, because there really are thinking like a concrete case before us. Banks are simply an honorary advisors. An acquisition consultant or an accountant can often be a good estimate of the potential and hence the room for negotiation. He may also assess a bank or perhaps not, but rather a holding company or informal investor in the acquisition to be involved.
2. HOW MUCH I CONTRIBUTE OWN RESOURCES?
Get around without a funding injection of private funds is a utopia. A bank is at risk of providing a loan, it would be strange if a buyer would face no financial risk. Lenders want you to feel pain when the buyer is not going well in the company. Otherwise you may be tempted to leave the sinking ship 'just' another salaried job to accept. But if you know a few tons of your own money are lost when the company goes bankrupt, you'll fight to the extreme for the case to save. Own resources to get around the funding may not even be necessary, the bank is mainly to make commitment on your part.
Hard guidelines are not, any deal is customized, but in practice it is not unusual for a bank requires that 20 percent of the acquisition from its own resources. Incidentally, this "own" funds also come from the vendor, for example in the form of a subordinated loan. The lower the ownership, the higher the extra guarantees the buyer to the bank will have to make. A bank will never ask the buyer for one hundred percent guarantee would stand for the loan - the company has often over collateral in the form of stocks, debtors and machinery - but a rate of 20 percent is not imaginary. With a purchase price of one million, with two tons of ownership and a loan of eight tons, in which case the purchaser is guaranteed 160,000 euro. Added to the two t own money running for the entrepreneur is 360.000 euro personal risk and flop over.
3. WHICH BANK WILL CHOOSE?
Banks are not bad, poor or account managers. One bank is not necessarily better than the other, what is essential to who to the table and how that person is proactive. Do not get yourself to just one bank. Financing a business acquisition is far more complex than financing a house. Before you know it you end up in a conversation about upstream, guarantee loans, accounts receivable financing and other things you do not have to do every day and you are not a equal partner. Be always assisted by a consultant experienced in business acquisitions and speaks the language of the bank. A good consultant will make himself a plan for the financial structuring of the acquisition and submit it to several banks. Based on the quotations you can then determine which bank you go to call.
The financing of a house does the selection of the bank mainly based on the amount of interest and processing fee. The financing aspects of a business play a lesser role. Discussions continue about the level of ownership, personal statements and guarantees repayment schedules. An entrepreneur can be much more help in a grace period (eg the first half year, no repayment obligation) than a few thousand dollars off the processing fee.
Which banks also approach your advisor, he will definitely bank of the selling party to an estimate. Namely that bank has the company in question: the numbers, the nature of the business, the growth potential. For the bank is financing the acquisition with less uncertainty lies than any other bank, and thus the greater chance of success. Always look beyond the bank. The competition is great, if you want a good case is like banking business.
4. WHEN A BANK NOTE?
A beautiful business and Excel sheets are beautiful, but the bank will always want to meet the entrepreneur personally. Often in the form of an interview, but you can also start meeting with a presentation that tells you about yourself, your motivation and your plans with the company. That always makes a professional impression. A bank is an identification with the entrepreneur: it is suitable for entrepreneurship? Is it he well know abot the industry? Your job? Experienced? reasons? A manager who is summed, a golden handshake meekreeg, could not find new jobs and finally decided to only one company to make, is not the most motivated entrepreneurs. Banks want to do business with passionate people who are able to create those beautiful forecasts from the business into reality. Also important is who you let advice. If you are accompanied by a renowned consulting firm, says something. Such agency will be good to spend time by only candidates who have the confidence.
Focus to case . In business, the profit forecasts for the bank not the most important. Profit is in fact a subjective concept, it is manipulated. Banks are particularly interested in cash flows. The central question is: are you able to interest and repayment of the loan to meet? On the basis of liquidity, the bank forecast assess whether this is the case. Do not just with an optimistic forecast. Also shows that a less favorable scenario you still can meet your requirements. Here are no guidelines, but when more than 80 or 85 percent of free cash flows to interest and repayment must be paid, the funding will generally be difficult. A financial setback will quickly than your ability to repay in danger.
5. HELP, FINANCE IS NOT AROUND. WHAT NOW?
It's common for an acquisition not only can be funded with private funds and a bank loan. There are various methods of funding still to get around. One possibility is to borrow money from family, friends & fools. Through the Venture Capital Scheme returns the investor tax benefits, but there are drawbacks: you put good relationships at stake.
More often jumps to the seller. That is illogical, because he wants to make the deal possible and is therefore willing to offer a helping hand. Most people choose a subordinated loan. Suppose the agreed purchase price is 2.5 million euros, you will own two tons, and the bank will not exceed two million. The transaction is likely to bounce, but the seller is willing to show the remaining three tons to lend to the buyer. Direction the bank is also a good sign that the seller is willing: it indicates that he has confidence in the buyer. A subordinated loan is - the name says it all - subordinated to the bank loan. This implies that the subordinated loan only under certain conditions may be relieved, such as total spending on interest and repayments do not exceed a certain percentage of the true freedom flows. Usually on a subordinated loan interest is paid directly, but he only repaid after a number of years.
Another possibility is an earnout arrangement. In this case the purchase price for a dependent of future results. The buyer pays such direct half and three million tonnes as the gain a certain level. If the profit is lower, then it expires or is this extra amount paid proportionally. This arrangement is particularly useful if the seller in the eyes of the buyer too rosy expectations about the future. He is only willing to pay for these expectations when they come true. An earnout arrangement is not without risks. The seller will not ever be controlled to prevent the copper a year is easy, making him miss his bonus. Furthermore, the seller may feel that the buyer profits by manipulating the following years to convert to lift.
Furthermore it is almost standard that purchased the assets of the subsidiary be used as collateral to obtain a loan on which no repayment obligation. This makes getting around a lot easier to finance. The same applies for a loan guarantee.
6. WHEN I KNOCK AT A INVESTOR?
Buyers are usually correct only to an investor if it is clear that the acquisition is not (entirely) with a bank loan can be financed. Obviously, because a bank loan is generally the cheapest form of financing. Banks want more security than investors and lower the risk, the lower the cost (interest). Another crucial difference is that investors no debt, but above equity and subordinated loans. They are also shareholders, hence many buyers only go along with the investors as absolutely necessary. The attraction for investors is that they again offer more than just money. Often, they have a large network and knowledge of the market, where the entrepreneur can do to his advantage.
It is important to determine as early as possible whether you are an investor or board gets. Often your adviser can help. He can assess whether the risk of the bank a takeover target matches. If not, eg because no profit is made if there is little collateral, then the choice for an investor to hand. The sooner you come to a private equity firm or informal knocks, the better. They are much more involved in the acquisition than a bank, simply because they co-owner. If you deal with the seller all around, and only then found with an investor is likely that there are cases where he agreed not agree. He is such the purchase price is too high or the subordinated loan from the seller to quickly repaid. Try once again to renegotiate with the seller.
In general, if the acquisition can be funded bank, then take no participation in society. It is expensive and cost control.
7.WHERE AN INVESTOR LOOK FOR?
Investors have one important characteristic: they want to view one exit. Each share is bought in order for them later. often after five to seven years. profitable again by the hand to do. The company participates in which an investor will therefore eventually sell should be the umpteenth staffing is much harder to sell than an ICT company that has developed a patented technology. Investors run hot especially for companies with distinctive, hard to copy and which have the potential of the top five in their industry to belong. Here Scalability is most important. How easily the company can be scaled up at low additional cost, how interesting it is. From that perspective, a franchisee is not interesting, but again is a franchisor.
Awaits an investor, like a bank, the person behind the business. The ideal candidate for an investor is 35 to 45 years old, after thinking for years about entrepreneurship, has a good adviser, comes from the industry itself is willing to invest and is supported by the home front.
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