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Financing acquisitions

In a slow-growth economy, such as what is anticipated in the United States for the foreseeable future, a great deal of business growth turns from organic grown to inorganic growth — namely acquisitions.

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While most bankers can put together a workable financing package for acquiring tangible assets such as equipment, many struggle when it comes to working with clients who plan to acquire another company. Having a banker that can respond quickly and accurately to an acquisition financing request is crucial to your success. Contacting your banker early is an important part of a successful acquisition. Even before you discover a target, meet with your banker to let them know what you will be doing. Get their input on how the structure of the acquisition could be handled.

There are tax benefits and drawbacks to specific buyout structures, but before talking about those, it’s important to understand whether or not there are other issues, with the target company or your own, that would preclude any bank being able to work with you. There are two main areas of both companies that need to be reviewed before taking the next step: cash flow/collateral and tangible and intangible assets.

Getting a banker involved up front with any acquisition is critical to getting the correct financing structure in place. Unfortunately, many people exploring acquisitions may not fully weigh the collateral/cash flow relationships before pursuing a deal, resulting in disappointment for all involved. There are many moving parts in an acquisition and every deal is unique. Likewise, financing options can change quickly, and a company’s specifics can evolve during an acquisition. It’s important to work with a financial institution that can not only provide the expert resources needed to successfully acquire a company, but that can also support your expanded financial requirements after the deal is closed.