With negative economic news grabbing the headlines in the Canada and the United States, business owners may think it is not a good time to sell their company. But fortunately for owners looking to sell, that is not necessarily true.
Business sales are still taking place with sellers capturing attractive prices and favorable terms, when the deal is structured properly. One of the most important foundations of constructing a successful deal has always been a solid buyer, one that is creditworthy. Whether it is an individual, another company, or a Private Equity Group, qualifying criteria are demonstrated business acumen, significant assets to pledge as collateral, or a committed fund behind them.
With a proven, credible buyer at the negotiating table, lenders are more likely to support the transaction. In today’s environment, some seller financing should be expected to get the deal done. It is not uncommon during a tight economy that sellers must share the risks with the buyer and the lender in order to achieve the highest value.
Therefore, now, more than ever, it is in the seller’s best interest to find the right buyer. This has resulted in the advantage going to buyers with a strong balance sheet
In today’s tight lending environment, a seller can still get a strong value for the business, but the seller may need to finance more of the purchase price than before. Regardless of the capital structure or finance considerations, a professionally crafted and creative deal structure is the key.
Typically, seller financing has been somewhere between five percent and 15 percent. With the current lending climate, seller financing may approach 15 percent to 40 percent amortized over 5 years.
After the buyer has proven him or herself in the business and shown that the debt payments will be made, the lender may allow restructuring of the seller’s note. As a result, the seller could receive full payment within three years to five years.
While the economy has put a crunch on available financing, it has not had a dramatic impact on the number of potential buyers. We continue to have strong buyer interest in acquisition opportunities and equity capital is still available. With the right buyer, the right portion of owner financing, and the right structure, deals are still getting done across the U.S.
What are the silver linings in today’s market? First, the government has a strong focus on freeing up the credit market and the Harper government is committed to continue this effort. And, second, although there have been many high-powered, high-paying jobs eliminated over the past several weeks, we are starting to see an influx of contacts by highly-educated individuals who have money and want to acquire their own business as a result.
The Canadian entrepreneurial spirit is still alive.
By: Mark Borkowski is president of Toronto based Mercantile Mergers & Acquisitions Corp. Mercantile specialize in the sale of mid market companies. He can be contacted at firstname.lastname@example.org or www.mercantilemergersacquisitions.com