The acquisition of a company is often financed by external contributions. It is rare that the buyer has all the necessary funds on his own. And it is rarely interesting for him to invest his savings without borrowing.
How to finance a business acquisition?
How to finance a business acquisition? One can turn to a traditional loan from a business bank. Business rates are low, with very interesting guarantees for the borrower. Credit institutions also offer advantageous conditions. But a business takeover can be an opportunity to apply for alternative financing methods.
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Financing a business acquisition through a loan convertible into shares
These are private investors who wish to make their savings grow by investing in the capital of a company, via a loan convertible into shares. They invest in their own name, for their own account. Depending on the terms of the agreement, the loan is converted into shares or repaid at the end of the loan. At the time of signing, the loan bonds are issued, along with the conversion price. The subscriber is entitled to an annual income.
The advantage of this financing is that the purchaser reduces his indebtedness. He converts his bonds into shares if the company is sufficiently successful. The investor is considered a creditor. He is therefore reimbursed in priority to the shareholders in case of default of the company. The risk for the buyer is the loss of management power. Especially if the investors seek above all a fast return on investment.
Participatory financing
Participatory financing is a collection of funds from several people. For a business takeover, it can take the form of donations, loans and equity investment.
- Crowd-donating: this is a call for donations where contributors give money without receiving anything in return. It is generally used by charitable projects and humanitarian associations. It can also be found in social and cultural projects or in fundraising for political campaigns.
- Crowd-lending: this is the form of crowdfunding applied to the business world. Individuals lend money to companies, with interest repayment spread over time.
- Crowd-investing: this participative investment generates a participation or a profit-sharing. It is accessible to small investors who have little influence on the company’s decisions. This formula can be found in real estate crowdfunding, which brings together private investors around a real estate project.
Read also: 4 essential reflexes before taking over a company
Before deciding on a method of financing a company takeover, it is recommended to analyze the ins and outs of the transaction. Check the implications related to the mechanism for collecting and transferring the funds generated. To finance a business acquisition, do not hesitate to combine several methods, depending on your objectives and those of your financial partners.
Are you looking to take over a company? Ask for advice from the experts at Actoria, a team of professionals specialized in business transfers.
