Competitor Take Over
Discussion
We’ve heard on the grapevine that one of our competitors is potentially up for sale. Aside from the valuation side of the process which has been well discussed in the forum, I’m interested to find out how take-overs are financed.
Our competitor is smaller than ourselves, turning over about £2M and employing 20 staff. I’ve no idea how to raise the funds necessary. I’m making a very rough assumption that the value of the business is £500’000, based on their current balance sheet of £350K and annual profits of £100’000.
we haven’t got that much cash in the bank, how do companies normally finance such take-overs?
Our competitor is smaller than ourselves, turning over about £2M and employing 20 staff. I’ve no idea how to raise the funds necessary. I’m making a very rough assumption that the value of the business is £500’000, based on their current balance sheet of £350K and annual profits of £100’000.
we haven’t got that much cash in the bank, how do companies normally finance such take-overs?
Set a agreement of payment of the year? the company we are taking over next week have agreed with payment settlement within 3 years
Company value i.e. £100k (this is only example - don't want to disclose how much is it !!)
Year 1 - £50k
Year 2 - £25k
Year 3 - £25k
This can work as we are doing similar to that one.
Company value i.e. £100k (this is only example - don't want to disclose how much is it !!)
Year 1 - £50k
Year 2 - £25k
Year 3 - £25k
This can work as we are doing similar to that one.
we are currently buying a competitor, and same as our selves we dont have the cash. The bank has given us 2 options. 1. Straight forward loan, full amount and pay back in 5 years, or an agreement to pay back in stages.
The bank will lend the money against security. How it was explained, they draw in the value from assests, ie. buildings, stock value, order books etc etc and then loan that amount. (if that makes sense) We are going for a company that is worth 300k, our building is worth approx 400k so the bank are throwing themselves at us.
Fortunatly we have a good track record and the bank can see that the business we are going for is a very good opportunatity.
The bank will lend the money against security. How it was explained, they draw in the value from assests, ie. buildings, stock value, order books etc etc and then loan that amount. (if that makes sense) We are going for a company that is worth 300k, our building is worth approx 400k so the bank are throwing themselves at us.
Fortunatly we have a good track record and the bank can see that the business we are going for is a very good opportunatity.
Can you secure any finance against assets your competitor has that you will sell off quickly? E.G. Do they own a premise you will close down and move their staff to your own premises? Or have they got capital equipment that is needlessly duplicated? Secure the money against that and sell it quickly to clear the debt.
griffgrog said:
Its not valuation advice that I'm after. It's how do companies finance take overs?
Go to a commercial bank. They exist to fund stuff like this.I am not sure if the big banks go down to this sort of size (they also finance multi-billion takeovers), but I assume that they do. Start off by calling HSBC over at Canary Wharf (to pick one name at semi-random), and ask to speak to someone there. They don't just lend money, they also advice, help with the legal side, and so on.
Thanks for the replies. We haven't done any due dilligence yet;- we're only just making the approach. Borrowing against assets would be fine for a business such as manufacturing, but we're in IT services. The company has no tangible assets as such, just a client and maintenance base. Our own bank are great at financing against tangibles, but seem less confident when dealing with less tangible assets. Valuing a building, lathe or company car fleet is easily understood, but valuing a client base? If anyone's in the company finance business, feel free to pm me.
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The best way by far to pay for a business is to get the seller to fund it. What I mean is try to agree payments in stages, say 35% up front in cash and further tranches after say 6 months, 12 months etc. The added advantage of this is that you should be able to write into the contract certain warranties, e.g. that turnover after year 1 should be £X otherwise the consideration is reduced accordingly. This certainly helps if you end up buying a pup. Other than that the banks can usually help by offering loans, invoice financing etc. It is normally prefereable for a buyer to buy assets, rather than the comapny itself. Much more tax efficient and cuts out most of the due diligence.
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