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Structuring A Business Acquisition Deal

Whether you want to enter a new market and hit the ground running or plan to buy out a competitor, business acquisitions can provide the solutions you need. Unless you or your business already possess cash in hand for the purchase, you may need a business acquisition loan to seal the deal.

Whether you choose this route or not, it is essential to remember that there is no one right way to go about business acquisition financing. Instead, it would be best if you considered how each available option might complement your business needs.


5 Business Acquisition Finance Options

Choosing the best structure for an acquisition deal goes far beyond just what the business or its owners can afford. Each option available comes with its own pros and cons. In turn, these factors can affect the ease of negotiations, the viability of the acquisition, and the deal’s success.

1. Stock Purchase

Stock purchases are one standard method of structuring an acquisition. When business owners choose to acquire a company this way, the stock price can affect how feasible the deal turns out to be. The willingness of stockholders to sell may also pose a problem. Not all companies have stock for sale. When applicable, once successfully acquired via this method, the company remains intact but under new ownership. The new owners assume all risks.

2. Asset Purchase

When business owners only want to purchase a specific product line or department, asset purchase is more appropriate rather than acquiring an entire business. This acquisition structure makes it possible to pin-point the particular assets and liabilities purchased. Despite the added complexity, buyers seek this option because it allows the ultimate flexibility for sweetening the deal in their favor. However, some sellers are not in favor of this option due to potential tax consequences and other financial impacts.

3. Seller Financing

Not every business has cash in hand to purchase a business. Getting an acquisition loan is not always easy either. This is especially the case if lenders do not believe the company for sale is worth the price. In these instances, seller financing may become a viable option. Also known as a vendor take-back loan, it allows the seller to maintain ownership until the buyer pays. Options may include earn-outs, seller notes, or delayed payments. This can sometimes prove less expensive than going through a traditional bank, but that depends on the seller and the market.

4. Leveraged Buyout

One of the most common methods of financing an acquisition is to use a unique blend of debt and equity. When choosing this method, business owners may need to prepare to see their existing business assets become collateral for the purchase. This may require first clearing any prior claims on these assets. Companies that choose this option generally have great cash flow and a solid foundation in assets.

5. Merger

When a business merger takes place, two companies become one new organization. There are several different ways to create the final, conjoined company. The existing relationship between the two companies can make different types of mergers:

  • Vertical merger, when one company creates products or services for the other
  • Horizontal merger, when two companies compete in the same industries and markets
  • Congeneric mergers, when two companies produce overlapping products and services
  • Market extension, when two companies sell competing products in different niches
  • Conglomerate mergers, when businesses belong to different industries


4 Factors To Consider When Determining the Right Structure for a Deal

Several different factors affect how well each acquisition deal structure works in specific situations. You may find that you need to review your approach every time you come across another business that could benefit your expansion goals via acquisition.

1. Flexibility

How much flexibility do you need, or are you willing to forego in the deal structure? If you need a great deal of flexibility, then asset purchase may work best for you. If the seller is cooperative and offers fair terms, seller financing may work well for you too. Building strong relationships with lenders, over time, may also help you secure flexible terms, should you decide to use debt to finance all or part of the deal.

2. Business Finances

Another critical factor to consider is how much cash your business can afford to spend on a merger or acquisition. It is essential to look beyond just how much cash you have available. You may also need to consider whether having cash-in-hand may prove a better investment than paying zero interest on an acquisition. If flexibility is important to you and the business requires large cash volumes, it may prove better to choose debt or equity financing.

3. Financial Complexities

No matter how cooperative a seller is and how easy a deal seems, complexities may arise. For instance, the contract may require stockholder approval to go through. You also need to review all financial statements and do due diligence to ensure the business is as it appears. This may all affect taxes and the transferability of liability and assets. Asset purchases are often the most complex.

4. Legal Complexities

Wherever financial complexities exist, legal complexities quickly follow. Because of this, you will need to work with an attorney who is experienced in this area and can help resolve any issues related to intellectual property, compliance with applicable laws, non-compete contracts, and the terms of all related agreements.


The Ideal Financing Choice

Even though business owners have a wealth of options to choose from, the final decision comes down to the most optimal choice for you. For most businesses business acquisition loans play a key role in the structured deal. LQD Business Finance is here for business owners who are interested in financing their acquisitions.

Apply for a business acquisition loan with LQD Business Finance today to experience our fast services first hand.

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