TRANSITION TALK

Preparing for Success in the M&A Arena : Pre-Qualifying for Bank Financing

Posted by Kem Taylor on Jun 10, 2020 1:59:16 PM

Preparing for Success in the M&A Arena

Acquiring a wealth management practice brings immediate growth and is an alternative to spending money and time on marketing to find new clients. That’s why there is currently an average 75-to-1 buyer-to-seller ratio. If you’re going to succeed in this arena, you need to stand out from that crowd. If you don’t have the cash on hand, one of the best steps you can take is to become prequalified for a conventional or Small Business Association (SBA) loan.

Twenty years ago, most acquisition deals consisted of a down payment of around 30% with the balance seller-financed through an earn-out arrangement. As fee-based practices became more prevalent, buyer demand increased. The combination of recurring revenue and increased demand pushed values higher and, in time, strengthened the underlying deal terms as well. Gradually we witnessed a shift to the use of performance-based promissory notes in place of earn-out arrangements. And, in the last seven years or so, the landscape changed yet again when the availability of bank financing entered the picture. This has afforded younger, smaller buying firms the opportunity to compete financially with larger, more established firms.

A place to start accessing this financing is to prequalify for a loan. A bank will review your finances and give you an estimate of how much they will lend to you. A bank’s prequalification tilts the acquisition playing field in your direction; you can knock out 90% of the competition. Sellers like the security prequalification brings to the transaction. In addition, you’ll be ready to move quickly if there’s a new opportunity or if a seller has a short time horizon.

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Topics: Acquisition, Bank Financing

Acquisition Tip of the Week #10

Posted by FP Transitions on Jan 26, 2016 11:39:00 AM

One of the most important factors in structuring an acquisition deal is figuring out payment terms, including down payments, payments schedules, and expected annual adjustments, if any. It has become a common practice to fully buy out a business over the course of 4-6 years, and that a seller must wait until then to receive the full value of their business. But what if there was another way?

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Topics: Acquisition, Tip of the Week, Financing, Bank Financing

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