Buisness Structure For Acquisition Financing

“Try To Say Open To All Your Business Structure Options When Seeking Acquisition Financing”

When a buyer or existing business acquires or buys another existing business, there are basically two ways to go about it. You can purchase the shares of the company if its incorporated or you can purchase the assets of the company.

In either case, you will have to decide who the actual purchaser or buyer will be. For example, will you set up a New Co to purchase the shares or the assets? Will the shares or assets be acquired by your existing company, or by yourself personally?

There can be several different options that can be considered for tax purposes, estate planning, liability protection, and so one.

Unfortunately, one of the structure considerations that often times doesn’t get worked into the decision making process is what is the best structure for acquiring debt or equity financing to provide some or all the necessary capital to complete the transaction.

Lenders and investors are going to have their own take on this subject to allow themselves to better protect their risk and optimize their security position. Which is why its not a good idea to jump too quickly into what the post acquisition business structure will be before gaining a solid understanding that the business financing you will require will be available for both the go forward business opportunity and the manner in which you plan to structure the deal.

Its not uncommon for a good solid acquisition to have trouble getting financing due to the manner in which the go forward ownership is structured on both a stand alone bases and in relationship to the existing business entities and/or personal holdings.

As an example, its a common practice on an asset purchase to complete the transaction through a New Co. But a new company will not have any established credit and without the backing of a sufficient corporate or personal guarantee or additional security pledge, the deal may not get approved and funded.

The working assumption that anything you can come up with respect to business structure and security for an acquisition can get financed for the terms and conditions you’re seeking is flawed.

The relevant lender and investor requirements at a given point in time for a certain type of acquisition scenario should also be factored in before any final papers are drawn up.

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About the Author Brent Finlay