A Smooth Transition in a Business Acquisition
Banks are leery of financing business purchases, especially for borrowers with marginal operating experience with the target business. Banks do not want to operate the business in order to secure repayment, because they are in the business of lending money – not operating business enterprises.
Most businesses have few hard assets to serve as collateral for loans, because their assets’ “worth” is in their continuous and profitable operation
Small Business Administration (SBA) backed loans are available to fund start-ups and business acquisitions. However, SBA loans can be difficult to obtain due to financial, operational and collateral issues. The buyer can investigate SBA loans through a local banker or visit SBA’s web site at for information on current lending requirements. Business acquisition loans are easier to obtain when combined with seller financing and earn-outs. Financing can be structured as a traditional loan with normal repayment schedules or as an earn-out with payments based upon future revenues. Seller financing and earn-outs provide the buyer assurance that the seller has a vested interest in the buyer’s ongoing business success.
Buyers purchase existing businesses to benefit from their income stream and established relationships with employees, vendors, and customers. Buyers may also purchase a business to benefit from the seller’s experience. Unfortunately, in the acquisition of smaller businesses, the seller often does not maintain written policies or procedures, resulting in limited operating knowledge for the buyer. Thus, a buyer must negotiate for the seller to remain with the business for a certain period of time to benefit from the seller’s operating experience. The acquisition of an existing business requires careful consideration. The buyer should utilize business acquisition consultants, conduct a thorough due diligence of the company, negotiate seller financing, and try to absorb the operating knowledge of the existing owner.
How to Achieve Successful Merger or Acquisition
MA transactions are extremely complex, often presenting legal and financial issues that can overwhelm inexperienced buyers. Most of the issues surrounding MA transactions fall in one of seven categories: • Poor and or little planning • Unrealistic project assessments • Improper allocation of time • Poor resource utilization • Miscommunication • Lack of solid business tools • Limited business information and data The occurrence of any one or a combination of these circumstances has the potential to derail even the most promising MA opportunity.
Challenge: Uncover “Synergy Savings” to Prevent “Deal Fatigue” and Post Acquisition or Merger Business Problems. MA transactions often fail because of an inability to identify potential areas of “synergy savings” early in the discovery process. “Synergy savings” are online payday loans Rhode Island areas where the newly-merged organization achieves substantial cost savings, and are thus great impetuses for business mergers. When “synergy savings” remain undiscovered for a long period of time, the potential for “deal fatigue” is heightened, increasing the likelihood that one or both parties will fail to complete the deal. Therefore, it is imperative that both buyers and sellers quickly present information resources and tools that will uncover all synergy savings opportunities, allowing the discovery process to move forward and the MA transaction to succeed.
Solution: Control Information to Accelerate Decision-Making Business Plan Implementation Controlled information access ensures the secure use of critical business data and information management tools that balance the needs of both buyers and sellers during the MA process. This accelerates decision-making and post-transaction business plan implementation. Controlled access also provides buyers with the timely and accurate information necessary to determine the overall viability of the transaction. This system’s security allows the seller to prevent proprietary information from falling into the hands of competitors, customers, suppliers or employees.