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Admit it. You've thought about it. Actually we probably all have. Just imagine a company purchase of a legendary Canadian tech company, or a merger or acquisition with your firm of one of Canada's iconic firms who perhaps has fallen on dire straits. Here's the reality though that might surprise you. Whether you have focused on a Canadian major corporation purchase, or at the other end of the spectrum a local pizza joint the key issues are probably still the same. What is the value of the business, and how do you finance it. And when you think about it even a great company that you over pay for can be financially disappointing. The good news is that there are numerous ways to value a company, and there is an even more proper way to match the financing of that purchase with the appropriate business financing. When it comes to purchasing a business it's about laying down the odds on future cash flows. The other reality of course is if you, or your firm are suited to buy this business , vis a vis experience, mgmt, etc. The challenge of buying a business in the SME (small to medium enterprise) sector is in some ways more dangerous than your purchase of a Canadian iconic brand, failing or otherwise. That's because when it's a larger corporation it allows you to bring in the usual army of accountants, investment advisors, business valuators, consultants (heaven forbid!)... Etc. Typically the financing of a firm is based on your valuation method, which might be an asset based transaction, a cash flow transaction, or an equity transaction. The challenge of financing an equity transaction is significant. That's because they are hard to finance because there is no liquidity exit for the lender. Case in point - we recently met and spoke with a 40% owner in what could be considered a major Canadian corporation. While the equity is worth millions of dollars financing of that equity is in fact as close to impossible as one could get. Asset based financing is much easier to achieve. But, don't forget that if you mis - value those accounts receivable, inventories, and equipment you might find that there is a lot of tuition to be paid in the school of book value! In fairness sometimes the true asset value of a transaction far exceeds book value - that's a good thing if you have focused on an asset based lending solution. Goodwill, like equity, is very hard to finance, enough said... so your ability to value and understand intangibles is critical. But also don't forget that when it comes to asset finance for a business financing merger, acquisition, company purchase, etc that you need to have a strong hand on market and replacement values. While public and very large corporations continually have multiples of earnings based performance that is much more difficult for a smaller or private firm. Frankly those earnings often have to be normalized, which usually means having to take the kids and grandma off the payroll. At the end of the day it's about financing assets, cash flows, and profits with a finance mechanism that is appropriate. Seek out and speak to a trusted, credible and experienced Canadian business financing advisor who can match financing and business acquisition goals in the right manner. Stan Prokop - founder of 7 Park Avenue Financial – http://www.7parkavenuefinancial.com Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 9 years - has completed in excess of 85 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing. Info re: Canadian business financing & contact details: http://www.7parkavenuefinancial.com/business_financing_merger_acquisition_company.html
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