Financing acquisitions: what are your options?

If you are in the process of acquiring a company in the Netherlands or are thinking about making an acquisition in the future, you will want to think about how to finance the transaction. The thing is though that banks are becoming increasingly more hesitant to provide financing. So what are your options for raising the money you need to finance your acquisition?

Combining lenders

As you might know, banks have been subject to stricter capital requirements for some years now. As a result, they are approaching acquisition financing with even more scrutiny, particularly if the buyer cannot provide sufficiently security. This makes acquisition financing a high-risk loan for a bank.

If you are unable to secure a bank loan, you will have to look for other ways to raise loan capital or private equity. It is getting to be more and more common nowadays for borrowers to take out loans from different lenders. Each lender provides part of the financing. This is referred to as loan stacking.

Ability to finance

What is important for a lender when deciding on whether or not to provide acquisition financing? What follows is a list of factors they typically consider:

• Confidence in the business acumen and management skills of the acquiring party.
• Past and future cash flows (e.g. a robust multi-year cash flow forecast).
• Own capital contributed by the buyer and loans provided by the seller; these are a reflection of the confidence the buyer and the seller have in the business.
• Insight into the company’s business model, the original capital requirement and environmental factors (e.g. a SWOT analysis).
• Provision of securities, both by the company and by the company owners in their private capacity, including securities provided by public or semi-public bodies, e.g. a government guarantee.

The ultimate lender will usually prefer to finance the operating company as much as possible because it generates the actual cash flows and usually holds most of the loan collateral, such as equipment, inventories and receivables.

Alternative acquisition financing

There are more options for financing an acquisition besides taking out a bank loan, using own capital or securing a loan from the seller. These include:

• Loans from family, friends, private or other investors
• Overdraft facility
• Sale-and-leaseback of assets
• Funds (confined to a certain region, sector or objective)
• Government-issued innovation loans (whether subordinated or not)
• Factoring of receivables and inventory
• Credit unions
• Microfinance from Qredits (up to € 250,000)
• Crowd-funding

To increase your chances of successfully securing a loan, you might want to consider:

• Applying for a government-backed guarantee.
• Having family or friends provide guarantees.
• Taking out a second mortgage on your home.

Ultimately, all lenders will make a decision based on their assessment of a combination of the following factors: interest, risk, repayments and securities.

Want to know what we can do for you?

accon■avm corporate finance would be happy to help you explore your options for acquisition financing. Please do not hesitate to contact us to find out more. Simply send an email to international@acconavm.nl and we will get back to you to schedule an informal chat to tell you about your options.