Growing a business with acquisition finance

There are many facets to business growth, a key area often overlooked but which can yield very positive outcomes, is acquisition. By adopting this growth strategy, a business can increase its profit level, staff numbers, sales network, geographical coverage and property portfolio all through the purchase of a synergistic company. Usually, the one missing piece, which often causes the largest stumbling block, is how to finance a deal for the purchase and this is where acquisition finance is so crucial.

As the name suggests acquisition finance is a lending facility that allows the purchase of another business. If we look at a local Estate Agent, who has the option to purchase a similar business in a neighbouring location, they could use acquisition finance to complete the deal. Upon completion of the purchase, the Estate Agent will benefit not only from the increase in territory but also assets and portfolio of sales.

A few of the most beneficial outcomes for growth via acquisition include:

• Increased market coverage through a larger customer base
• Increased access to staff, often bringing new and complimentary skill sets
• Increased purchasing power due to additional facilities and resources
• Increased product and service offering
• Increased turnover and profit margins

Most businesses won’t have the capital to outright purchase a second company though which is why acquisition finance is so important. In fact, there are a number of funding options available within the parameters of acquisition finance. If we use the previous example of an estate agent, the following are some possible scenarios:

• If purchasing a smaller business with lower cashflow levels or cash reserves, then an acquisition deal can be used whereby the Estate Agent will purchase all available shares taking over the ownership upon completion.
• An Estate Agent might want to purchase another agency but to leave it to operate independently, servicing its clients in the same way it always has and from the same location. In simple terms all that happens is a change in ownership and a different shareholder structure.
• When an independent Estate Agent has decided they want to sell then they will look to release the entire business through a sale which results in the outright purchase bringing in new owners and shareholders

If you have any questions or would like to discuss any aspect of acquisition finance, please call us on 01993 706403 or e-mail enquiries@ngifinance.co.uk.