Finance For Acquisitions

When looking at raising funds for acquisitions there are probably two popular ways of doing it.

1) Asset Based Lending (ABL) allows you to leverage the assets of the business. You can use the assets of your existing business and also the assets of your target business.

2) Debt Funding provides a structured debt solution based on a multiple of EBITDA. This can typically be up to 3 X EBITDA but any existing debt and debt servicing costs will be taken in to account.

Sometimes there can be a mixture of ABL and Debt Funding.

Asset Based Lending

ABL can be beneficial when the profits of the business don't necessarily support the required level of funding for a structured finance facility. You can typically borrow:

• Up to 90% of the receivables
• Up to 70% of the P&M valuation
• Up to 70% of the property valuation
• About 20-25% of the stock valuation

If profitability supports, a cash flow loan can be added alongside these facilities. The revolving nature of the receivables element can offer a cash flow benefit.

The ABL facility is typically offered by a single lender although it may be beneficial to break down the individual elements and finance with specialist lenders.

Debt Funding

In its most basic form this can be a straight forward amortising loan over a term of up to 5 years.

For larger requirements the facility can be structured to meet the cash flow objectives of the business. It can be a blank canvas but a real example might offer more insight. We recently offered a facility with the following structure:

• ￡4.5m facility
• Term 5 years
• 6 month payment holiday
• ￡2.375m of the facility was fully amortising with quarterly repayments
• The remaining ￡2.125m was viewed as a bullet payment at the end of the 5 year term

This was structured to meet the cash flow and objectives of the business. The benefit of having the bullet repayment at the end is that it gives a profile of a longer term facility although it is a 5 year term. The bullet payment can be made from reserves or could be refinanced.