Different forms
You have different forms of acquisitions. One is the MBO (Management Buy-Out), where the buyer is already involved in the company as a manager or director. Here, the uncertainty for both parties is somewhat lower, as they already know each other through and through, and the buyer will normally not encounter any surprises either. Following on from this is the MBI (Management Buy-In), where the buyer is not already involved as a manager/director, but wants to take on that role. Often, the buyer already has experience in the industry. Then you have business succession, where a family member of the owner/founder takes over and continues the business. Finally, there is the takeover by an investor or investment company. This is often experienced in making acquisitions in a particular sector, but does not perform the role of the DGA himself. One often hires an external director or appoints one of the managers in the company as a director.
Funding
In all cases, there is a financing requirement. After all, the selling party will want to take the accumulated equity from the business, often supplemented with goodwill in the case of a well-profitable business. The latter is actually the future added value of the company for the buyer. How goodwill is calculated is matter for another article.
Funding can come about in a number of ways, often in combination:
- Banking: financing of the purchase price and working capital required by the existing house bank or a new house bank
- Alternative: financing by a non-banking institution, preferably with a combination of overdraft and one or more loans.
- Asset-based financing: financing of working capital based on the amount of accounts receivable and preferably also inventories. This financing grows with the company's development.
- Equity or loan from the seller: to create a healthy position, the buyer will also have to provide some of the financing himself. "Skin in the Game", Warren Buffet called this. If the buyer does not have sufficient funds, the seller can accommodate him by withholding part of the purchase price. He will then get it repaid later or in instalments.
Guidance for the buying and selling process
For both buyers and sellers, it is important to be assisted by professional advisers. On the one hand because it requires litigation experience and expertise, but also because they themselves are often too emotionally involved.
Xolv Finance's partners have extensive experience in acquisition processes and their financing. They have completed acquisitions on their own account and therefore know better than anyone else what is involved. Do you have plans for a company takeover or are you in the middle of one and looking for financing? Call us and we will catch up over a cup of good coffee (or tea).
