{"id":2704,"date":"2022-03-21T06:25:02","date_gmt":"2022-03-21T06:25:02","guid":{"rendered":"https:\/\/uk.legalvision.com.au\/?p=2704"},"modified":"2023-05-16T06:48:12","modified_gmt":"2023-05-16T05:48:12","slug":"finance-an-acquisition","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/business-sale-purchase\/finance-an-acquisition\/","title":{"rendered":"How Do I Finance an Acquisition?"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">If you are an owner of a business, you may look at expanding your company by <a href=\"https:\/\/legalvision.co.uk\/business-sale-purchase\/acquiring-another-business\/\">acquiring another business<\/a>. This is a good way of growing the size of your business and can be part of your overall business strategy.\u00a0<\/span><span style=\"font-weight: 400;\">However, completing an acquisition of a target company will require an acquisition financing strategy. This article will explain some of the different ways to finance an acquisition and give some pointers on the best type of finance for your business.<\/span><\/p>\n<h2>What is Financing?<\/h2>\n<p><span style=\"font-weight: 400;\">Put simply, financing is the way that you fund something. There are different types of <a href=\"https:\/\/legalvision.co.uk\/startups\/raise-finance-debt-equity\/\">financing structures<\/a>. The appropriate type for you depends on the type of business you are running and the business you are acquiring.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Some common ways of acquisition financing are:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">company funds;<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">company equity;<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">a traditional bank loan;<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">a leveraged buyout; or<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">a <a href=\"https:\/\/legalvision.co.uk\/corporations\/what-is-business-joint-venture\/\">joint venture<\/a>.\u00a0<\/span><\/li>\n<\/ul>\n<div class=\"box box--icon box--idea\">\n<p><span style=\"font-weight: 400;\">It is typically a good idea to choose more than one way of financing to complete your acquisition. Most deals will use equity and debt financing hybrid within the acquisition financing structure.\u00a0<\/span><\/p>\n<\/div>\n<h2>Company Funds<\/h2>\n<p><span style=\"font-weight: 400;\">The first type of financing that may come to mind is using your own company&#8217;s funds. If your company has a large cash reserve, you may consider using some or all of the cash to fund an acquisition.\u00a0<\/span><\/p>\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400;\">Most transactions will require some upfront cash. However, financing your acquisition entirely through a cash transaction is generally not a good idea, even if you can afford it. By using cash, you are risking your company&#8217;s liquidity. Furthermore, if you have a problem with cash flow in the future, not having any liquidity can cause serious problems.<\/span><\/p>\n<\/div>\n<p><span style=\"font-weight: 400;\">As a result, you should generally use company funds alongside debt financing.\u00a0<\/span><\/p>\n\n<a href=\"#content-next\"\n   class=\"block p-4 mt-10 text-xl font-bold text-center text-white no-underline bg-gray-800 rounded-t-xl\">\n    Continue reading this article below the form\n    <i class=\"text-xl fa-regular fa-arrow-down\"><\/i>\n<\/a>\n<div class=\"px-6 pt-10 pb-12 mb-10 text-center bg-gray-100 rounded-b-xl sm:px-12 test\">\n    <div class=\"mb-8 text-2xl font-bold text-orange\">\n        Need legal advice?\n        <br>\n        <span class=\"text-lg not-prose\">\n                            Call <a href=\"tel:+448081968584\" class=\"not-prose\">0808 196 8584<\/a> for urgent assistance.\n                <br>\n                Otherwise, complete this form, and we will contact you within one 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This can be an excellent way to ensure that the acquisition runs smoothly, especially if the other business owner wants to maintain some control over their own business.\u00a0<\/span><\/p>\n<div class=\"box box--icon box--idea\">\n<p><span style=\"font-weight: 400;\">Usually, companies will do this to merge their business procedures with another business.\u00a0<\/span><\/p>\n<\/div>\n<h2>Traditional Bank Loan<\/h2>\n<p><span style=\"font-weight: 400;\">Another option is to take a traditional bank loan. This comes with all of the normal caveats of a bank loan, such as interest rates, which have recently seen low rates.\u00a0<\/span><\/p>\n<div class=\"box box--icon box--info\">\n<p><span style=\"font-weight: 400;\">Debt, more generally, is a good way of keeping liquidity within your company while also expanding your business.\u00a0<\/span><\/p>\n<\/div>\n<p><span style=\"font-weight: 400;\">Usually, your own bank will give you reasonable rates for a bank loan. Nevertheless, it is always good to look around for bank loan rates before settling.\u00a0<\/span><\/p>\n<h2>Leveraged Buyout<\/h2>\n<p><span style=\"font-weight: 400;\">Leveraged buyouts often receive lots of media coverage as they are used in financing large blue-chip company acquisitions. Moreover, they are the primary financial device used within the private equity sector. Despite this, leveraged financing options are available for small and medium-sized businesses.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Leveraged buyouts will usually involve putting down very little of your own capital. Instead, you use high amounts of debt from various sources to finance the acquisition.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This is useful because you can raise very high amounts of money to finance an expensive acquisition without needing too much upfront capital. However, you will need to generate enough cash flow to be able to cover the debt payments.<\/span><\/p>\n<div class=\"box box--warning box--icon\">\n<p><span style=\"font-weight: 400;\">Further, if the deal goes wrong and you cannot service the debt, your business will be at serious risk of sinking completely. As a result, private equity and leveraged finance is often seen as high risk but high reward.<\/span><\/p>\n<\/div>\n<h2>Joint Venture<\/h2>\n<p><span style=\"font-weight: 400;\">Although a joint venture is not technically a type of financing, it can be a great way of acquiring another business. This is where you gain joint control over a business, which involves a much lower upfront cost.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, finding a suitable joint venture partner is usually not easy. You will also have much less control in the acquired business because you will be sharing ownership with another business. This can make it challenging to prioritise your own business growth strategy.<\/span><\/p>\n<h2>Key Takeaways<\/h2>\n<p><span style=\"font-weight: 400;\">Financing your acquisition is an essential aspect of growing your business. Cash transactions, bank loans, equity finance, or leveraged buyouts (common in private equity) are examples of different financing options.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Deciding which financing option is best for your business depends on your overall strategy. For example, if your business has healthy cash flows and you are confident in your ability to expand, then a leveraged buyout might be a good idea. However, using a mixture of standard debt and cash financing is typically the best option for your business.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">If you need help with deciding how to finance an acquisition, our <\/span><a href=\"https:\/\/legalvision.co.uk\/business-sale-purchase-lawyers-lp\"><span style=\"font-weight: 400;\">experienced business sale and purchase lawyers<\/span><\/a><span style=\"font-weight: 400;\"> can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on <a href=\"tel:+448081968584\" class=\"AVANSERnumber dynamic-number\">0808 196 8584<\/a> or visit our <\/span><a href=\"https:\/\/legalvision.co.uk\/membership\"><span style=\"font-weight: 400;\">membership page<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/p>\n<h2>Frequently Asked Questions<\/h2>\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1647843732396\"><strong class=\"schema-faq-question\">What is debt finance?<\/strong> <p class=\"schema-faq-answer\">Debt financing is when you borrow money in some shape or form to pay for your project.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1647843739586\"><strong class=\"schema-faq-question\">What is a leveraged buyout?<\/strong> <p class=\"schema-faq-answer\">A leveraged buyout is a type of debt financing that uses high debt levels.<\/p> <\/div> <\/div>\n<div class=\"not-prose m-feedback-prompt\">\n    <!-- Thumbs up\/down bar -->\n    <div class=\"m-feedback-prompt__main\">\n        <div class=\"m-feedback-prompt__title\">Was this article helpful?<\/div>\n        <div>\n            <!--span class=\"m-feedback-prompt__button--text\">Thanks!<\/span-->\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--yes\"\n                    data-analytics-link=\"feedback-prompt:yes\" aria-label=\"Agree\">\n                <i class=\"fa-regular fa-thumbs-up fa-3x\"><\/i>\n            <\/button>\n            <button type=\"button\" class=\"m-feedback-prompt__button m-feedback-prompt__button--no\"\n                    data-analytics-link=\"feedback-prompt:no\" aria-label=\"Disagree\">\n                <i class=\"fa-regular fa-thumbs-down fa-3x\"><\/i>\n            <\/button>\n        <\/div>\n    <\/div>\n\n    <!-- Feedback form -->\n    <div class=\"m-feedback-prompt__form\">\n        <div class=\"m-feedback-prompt__form--thanks \">\n            <div>Thanks!<\/div>\n            <p>\n                We appreciate your feedback \u2013 your submission has been successfully received.            <\/p>\n        <\/div>\n        <form id=\"contact-form\" class=\"m-feedback-prompt__form--form\" action=\"\" method=\"post\">\n            <input type=\"hidden\" id=\"authenticity_token\" name=\"authenticity_token\" value=\"9eb4f72322\" \/><input type=\"hidden\" name=\"_wp_http_referer\" value=\"\/api\/wp\/v2\/posts\/2704\" \/>            <input value=\"https:\/\/legalvision.co.uk\/business-sale-purchase\/finance-an-acquisition\/\" type=\"hidden\" name=\"currenturl\"\n                   id=\"currenturl\">\n            <input value=\"How Do I Finance an Acquisition?\" type=\"hidden\" name=\"currenttitle\"\n                   id=\"currenttitle\">\n            <label>\n                <!-- display on thumbs-up -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--yes\">\n                    Can you tell us <span class=\"font-semibold\">why<\/span> you found it helpful?\n                <\/span>\n\n                <!-- display on thumbs-down -->\n                <span class=\"m-feedback-prompt__feedback m-feedback-prompt__feedback--no text-lg\">\n                    How can we better improve this article?\n                <\/span>\n                <textarea name=\"feedbackmessage\" id=\"feedbackmessage\" required><\/textarea>\n            <\/label>\n\n            <div class=\"m-feedback-prompt__form--error\" id=\"form-submit-error\"><\/div>\n            <button id=\"submit-contact-form-button\" type=\"submit\" name=\"commit\" class=\"m-feedback-prompt__form--submit\"\n                    data-analytics-link=\"feedback-prompt:submit\">\n                Submit            <\/button>\n        <\/form>\n    <\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"<p>If you are an owner of a business, you may look at expanding your company by acquiring another business. This is a good way of growing the size of your business and can be part of your overall business strategy.\u00a0However, completing an acquisition of a target company will require an acquisition financing strategy. This article<a href=\"https:\/\/legalvision.co.uk\/business-sale-purchase\/finance-an-acquisition\/\">Continue reading <span class=\"sr-only\">&#8220;How Do I Finance an Acquisition?&#8221;<\/span><\/a><\/p>\n","protected":false},"author":13325,"featured_media":533,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_relevanssi_hide_post":"","_relevanssi_hide_content":"","_relevanssi_pin_for_all":"","_relevanssi_pin_keywords":"","_relevanssi_unpin_keywords":"","_relevanssi_related_keywords":"","_relevanssi_related_include_ids":"","_relevanssi_related_exclude_ids":"","_relevanssi_related_no_append":"","_relevanssi_related_not_related":"","_relevanssi_related_posts":"892,1443,1731,1365,2036,1911","_relevanssi_noindex_reason":"","editor_notices":[],"footnotes":""},"categories":[29],"tags":[21,103,651,652,653],"class_list":["post-2704","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-sale-purchase","tag-medium-business","tag-business-owner","tag-business-acquisition","tag-leveraged-buyout","tag-buy-a-business"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.1.1 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>How Do I Finance An Acquisition? | LegalVision UK<\/title>\n<meta name=\"description\" content=\"Are you a business owner who wants to expand your business? 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