Acquisition Finance Update Sept 26

Jamie Holroyd - Managing Director

Organic growth is important but it is not the only path to scale.

Acquiring a competitor or complementary business can accelerate growth by adding revenue, customers, capability, geographic reach and market share. It can also improve industry structure by reducing fragmentation and creating a stronger, more efficient combined business.

For many owners however, an acquisition appears financially out of reach. In practice, it may be more achievable than expected. Unlike funding an entirely new venture, an established acquisition brings existing revenue, assets and cashflow. Subject to appropriate due diligence and transaction structuring, lenders can consider the cashflow of both the acquiring business and the target business when assessing debt-servicing capacity. This means the acquisition itself may contribute substantially to the funding required to complete it.

There are generally readily identifiable synergies in addition. Duplicated overheads across administration, premises, systems, management, professional services and other corporate functions can often be consolidated. When carefully planned and executed, these savings can increase the earnings and debt-servicing capacity of the combined group.

However, a good strategic opportunity is not automatically a financeable transaction. Many businesses brought to market are not genuinely sale-ready. Financial information may be incomplete, earnings poorly normalised, working-capital requirements unclear and forecasts unsupported. Customer concentration, owner dependency and undocumented systems may create further uncertainty.

These shortcomings can:

• Reduce buyer confidence.

• Prolong due diligence and negotiations.

• Make the transaction more difficult to finance.

• Increase the risk of adverse lending conditions.

• Cause both buyers and sellers to leave value on the table.

STRATOSFEAR Growth & Acquisition Finance brings strategy, transaction structuring and finance together.

We work with buyers to:

• Assess whether an acquisition will create long-term enterprise value.

• Determine sustainable earnings and cashflow.

• Identify and validate achievable synergies.

• Structure the purchase price, equity contribution and debt facilities.

• Prepare integrated financial forecasts and lender submissions.

• Coordinate financiers, accountants, lawyers and other advisers.

• Maintain momentum from initial assessment through to settlement.

Our role is not simply to obtain an approval. It is to develop a transaction structure that is strategically sound, financially sustainable and capable of being executed.

The right acquisition can achieve in one transaction what may otherwise take years to build organically. The key is knowing what to acquire, what it is worth, how to structure it and how to finance it.

To discuss your specific situation, email jamie.holroyd@stratosfear.com.au