Raising £6 million to buy a business?
Discussion
A group of us are considering buying a niche market business. Valuation is spot on around £6m.
Business has strong net profit and good potential growth.
What modes of finance raising could be undertaken?
I'm thinking some form of leveraged buyout but have no experience in undertaking this.
Thoughts on a postcard or a motoring forum thanks
Business has strong net profit and good potential growth.
What modes of finance raising could be undertaken?
I'm thinking some form of leveraged buyout but have no experience in undertaking this.
Thoughts on a postcard or a motoring forum thanks
With that level of your own cash in the deal, I imagine you aren't far off getting a bank to support the rest. Might need to make it up to 50% to tip the scales which could be made up via a loan note from the seller.
You can probably avoid private equity and therefore giving up significant equity, unnecessary governance and the corresponding management fees.
Before involving the obligatory corporate financier, private equity boys etc it might be work just contacting the high street banks.....I've found Lloyd's commercial helpful in the past...quick google of "Lloyds commercial acquisition" get you the contact details
When I've looked in the past I've never found the crowd sourcing solutions useful for private individuals looking to acquire
Good luck - sounds exciting
You can probably avoid private equity and therefore giving up significant equity, unnecessary governance and the corresponding management fees.
Before involving the obligatory corporate financier, private equity boys etc it might be work just contacting the high street banks.....I've found Lloyd's commercial helpful in the past...quick google of "Lloyds commercial acquisition" get you the contact details
When I've looked in the past I've never found the crowd sourcing solutions useful for private individuals looking to acquire
Good luck - sounds exciting
A loan is going to depend on security, if the loan can be secured against assets it will be OK, if not it could be a problem.
With venture capital they are going to be looking at taking a shareholding, obviously the upside on that to them is much higher if they benefit in the growth in value of the company. So VCs are much more likely to participate but are you willing to put up some equity?
With venture capital they are going to be looking at taking a shareholding, obviously the upside on that to them is much higher if they benefit in the growth in value of the company. So VCs are much more likely to participate but are you willing to put up some equity?
Thanks for the responses guys.
I have considered Private Equity however as the price is rather low I didn't think it would be of interest to them.
But perhaps it may be as certainly the growth factor is exciting.
I have some experience in the P/E field due to being part of the management team that sold a similar company, albeit larger two years ago to KKR for $1.15B. That involved Candover/Arle Group and Electra. Both mid-size PE's.
Anyhow I have two investors lined up, one a supplier to the industry based out of HK and one FFF (friend, fool, family etc..) plus my own cash.
At this point though it's very early days. No NDA has been signed with potential acquisition and thus no certified accounts have been seen, hopefully next month.
Oh, I'm located in Australia but the business is located in Germany (this is not an issue as the growth areas are North America and Canada anyhow).
I have considered Private Equity however as the price is rather low I didn't think it would be of interest to them.
But perhaps it may be as certainly the growth factor is exciting.
I have some experience in the P/E field due to being part of the management team that sold a similar company, albeit larger two years ago to KKR for $1.15B. That involved Candover/Arle Group and Electra. Both mid-size PE's.
Anyhow I have two investors lined up, one a supplier to the industry based out of HK and one FFF (friend, fool, family etc..) plus my own cash.
At this point though it's very early days. No NDA has been signed with potential acquisition and thus no certified accounts have been seen, hopefully next month.
Oh, I'm located in Australia but the business is located in Germany (this is not an issue as the growth areas are North America and Canada anyhow).
robm3 said:
Oh, I'm located in Australia but the business is located in Germany (this is not an issue as the growth areas are North America and Canada anyhow).
That sounds like a 'welcome to my world', conference calls at weird times (try getting Europe, US and Australia on at the same time!) and a life on planes (I'm well over 300 hours on planes this year - which is more than two weeks). Very rewarding when it all works, but very hard and impacts on the personal life somewhat.Have you thought about these guys
http://www.businessgrowthfund.co.uk/
I have met a few of their senior people. They are longer term-focussed and not immediately thinking about exit plans.
http://www.businessgrowthfund.co.uk/
I have met a few of their senior people. They are longer term-focussed and not immediately thinking about exit plans.
Sounds interesting. A couple of points:
PE will be interested, they go as low as £2m but it depends of the type of business but if it has growth potential they will definitely look.
A PE model with require a strong management team, I assume they are the current team.
How much of your equity will you want to give up to them too.
In terms of leveraging you need to determine what in the business there is to leverage against. Most financial companies won't lend against bricks and mortar anymore. Debtors would be the best for leverage.
PE will be interested, they go as low as £2m but it depends of the type of business but if it has growth potential they will definitely look.
A PE model with require a strong management team, I assume they are the current team.
How much of your equity will you want to give up to them too.
In terms of leveraging you need to determine what in the business there is to leverage against. Most financial companies won't lend against bricks and mortar anymore. Debtors would be the best for leverage.
It's a strong growth niche industry with high barriers of entry. Some good IP and excellent brand name, under-developed and playing in slightly wrong sector (easy fixed).
Good Engineering team, Good Sales team but requires CEO (a couple of potentials I'm meeting in December too).
In this industry there's been three larger but similar companies sold, all have achieved circa 11 X EBIDA multiples.
I personally won't have access to my next lump of cash for 12 months but want to structure the deal throughout 2015 and so it's worth kicking off the dance now.
For investment I'm going to go this route:
Personal Investors - I know a couple that'll possibly be interested.
Commercial Banks (or commercial divisions of high st banks) - Lower rates but higher requirements for financing
P/E - Less barriers to obtaining financing but demand higher reward (up to 35%pa when the dust settles or 3 x investment over 5-6 years), also can assist in the exit process that I'd intend to do in around 5 years.
I should point out that 6 million also includes a 24 months expansion plan, actual purchase price is much lower.
Good Engineering team, Good Sales team but requires CEO (a couple of potentials I'm meeting in December too).
In this industry there's been three larger but similar companies sold, all have achieved circa 11 X EBIDA multiples.
I personally won't have access to my next lump of cash for 12 months but want to structure the deal throughout 2015 and so it's worth kicking off the dance now.
For investment I'm going to go this route:
Personal Investors - I know a couple that'll possibly be interested.
Commercial Banks (or commercial divisions of high st banks) - Lower rates but higher requirements for financing
P/E - Less barriers to obtaining financing but demand higher reward (up to 35%pa when the dust settles or 3 x investment over 5-6 years), also can assist in the exit process that I'd intend to do in around 5 years.
I should point out that 6 million also includes a 24 months expansion plan, actual purchase price is much lower.
robm3 said:
It's a strong growth niche industry with high barriers of entry. Some good IP and excellent brand name, under-developed and playing in slightly wrong sector (easy fixed).
Good Engineering team, Good Sales team but requires CEO (a couple of potentials I'm meeting in December too).
In this industry there's been three larger but similar companies sold, all have achieved circa 11 X EBIDA multiples.
I personally won't have access to my next lump of cash for 12 months but want to structure the deal throughout 2015 and so it's worth kicking off the dance now.
For investment I'm going to go this route:
Personal Investors - I know a couple that'll possibly be interested.
Commercial Banks (or commercial divisions of high st banks) - Lower rates but higher requirements for financing
P/E - Less barriers to obtaining financing but demand higher reward (up to 35%pa when the dust settles or 3 x investment over 5-6 years), also can assist in the exit process that I'd intend to do in around 5 years.
I should point out that 6 million also includes a 24 months expansion plan, actual purchase price is much lower.
The point you made about 'Larger' companies achieving 11X earnings. I would argue anything under 50M revs/5M earnings would be closer to 5X max. Unless it's got 5 years history to prove the growth 11X is crazy imv
Good Engineering team, Good Sales team but requires CEO (a couple of potentials I'm meeting in December too).
In this industry there's been three larger but similar companies sold, all have achieved circa 11 X EBIDA multiples.
I personally won't have access to my next lump of cash for 12 months but want to structure the deal throughout 2015 and so it's worth kicking off the dance now.
For investment I'm going to go this route:
Personal Investors - I know a couple that'll possibly be interested.
Commercial Banks (or commercial divisions of high st banks) - Lower rates but higher requirements for financing
P/E - Less barriers to obtaining financing but demand higher reward (up to 35%pa when the dust settles or 3 x investment over 5-6 years), also can assist in the exit process that I'd intend to do in around 5 years.
I should point out that 6 million also includes a 24 months expansion plan, actual purchase price is much lower.
The point you made about 'Larger' companies achieving 11X earnings. I would argue anything under 50M revs/5M earnings would be closer to 5X max. Unless it's got 5 years history to prove the growth 11X is crazy imv
Multiples have less to do with revenues and more to do with EBIT/EBITDA. The general rule of thumb is the higher the profit figure the higher the multiple, so to command an 11x multiple the EBIT must be in excess of £5-6m.
There are other factors to consider too, e.g. companies with pipelines/contracted work will invariably command a higher £. It is safe to say though that if £5-6m is your first target and as long as a company trading less than 5 years demonstrates, robustly, its ongoing revenue, then this all makes sense.
There are other factors to consider too, e.g. companies with pipelines/contracted work will invariably command a higher £. It is safe to say though that if £5-6m is your first target and as long as a company trading less than 5 years demonstrates, robustly, its ongoing revenue, then this all makes sense.
You also need to understand how the 11x is calculated. For example a major shareholder may take a massive salary or have other costs in the business, which are not Commerical. This would push the disclosed profits down, then when you for the calculation the multiple comes out higher than reality, so always take multiples with a pinch of salt.
There are any number of companies that have set up direct lending strategies over the last few years aimed at SME lending. Generally they have trouble finding people to lend to that are acceptable. Most will only lend a minimum of £10mil but there are some that will lend smaller amounts down to a few hundred thousand. Most of them struggle to find people to lend to....I spoke to one of these firms a few months ago....they had resorted to cold calling the FTSE 500 because they'd just not been getting enough introductions. An hour or so spent on Google should yield results.
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