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4 ways of
custom financing an acquisition
Acquiring a business often requires a financing
package involving several sources of financing. This can be a
complex undertaking, especially in cases that require over
$500,000, and many entrepreneurs would be well advised to seek
outside advice. There are management consulting companies,
such as ours and accounting firms that specialize in
acquisitions.
Because of our experience and contacts
with financial institutions and investors, our consultants can
often find people quickly who are interested in your project.
Getting them involved at the beginning of the planning stage
of an acquisition greatly simplifies the tax aspect.
In the majority of cases, there are four types of
lenders and investors you can turn to. Masari, Inc. has
relationships with each of the following types of
lenders:
1.
Lenders interested in fixed assets
Acquiring a business often involves the
purchase of buildings or equipment. Your tax expert might
suggest that you get a separate bank loan for this part of the
project, either from your current bank or, depending on your
situation, jointly with other financial institutions.
2. Lenders
interested in the whole package
Masari, Inc. often supports expansion
projects with its term financing lenders programs. Unlike
conventional loans, this formula allows flexible repayments
(graduated or seasonal) and the loan is not called without a
valid reason.
Companies that have a competitive
advantage in a fast-growing industry should consider subordinate
financing. With this formula, financial
institutions often offer higher amounts and accept subordinate
security but require a higher return (for example, 18% to 22%)
and may ask for royalties on future sales or stock options.
3. Equity
investors
Depending on your situation and the
amount you require, you can also look for venture capital
where, in exchange for a significant portion of the capital
stock and representation on the board of directors, your
investor becomes a valuable financial partner.
It is usually investment banks, institutional
investors, labour-sponsored venture capital funds, and private
mutual funds that offer this type of financing.
What
is interesting about these institutions is that they invest in
all types of industries and sectors. However, they select very
carefully, choosing only businesses that have excellent growth
potential.
Sometimes technology-oriented venture
capital companies consider acquisitions. They will look
favourably, for example, on the acquisition of a leading-edge
business whose product or products are almost ready to be
marketed and are a good fit with those of a more mature
company.
4.
Strategic investors
There are
strategic investors for all types of businesses and they are
better equipped than general investors to quickly understand
the subtleties of a particular industry.
They may be
groups of professionals in a specific industry who are well
informed about what is happening in their market, and are
therefore quicker to recognize the opportunities due to their
understanding of the risks involved.
Large
corporations are also acquiring more and more equity in
companies whose growth they wish to support. Their aim is to
focus on their basic competencies, while benefiting from the
success of a partner exploiting a promising niche in their
industry or sector.
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