Tag Archives: Canada

Management Buy Out Funds

Management buy out financing can often present a solid opportunity for success in the Canadian business landscape. Buyout funding for mgmt or acquisitors is a specialized type of financing. Let’s dig in.

While management buyouts and acquisitions often seem ‘ less risky ‘ to many there is certainly more chance of success when a company is acquired at the ‘ right price ‘ and has profits and good revenue potential. When proper financing is executed in such a buyout or acquisition without taking on too much debt and allowing for working capital needs the business success formula is clearly in sight.

In the Canadian marketplace it is very reasonable to assume that a normal amount of owner equity will be a portion of every deal. The concept of ‘100% OPM (other peoples money) rarely works!

There is a huge difference in the how firms in the SME Commercial landscape are acquired and financed , versus larger corporations who rely on private equity firms and pension funds that have large resources, as well as the probably ability to acquire senior lender bank type debt to finance deals.

Highly leveraged ‘ debt heavy’ mgmt buyouts and acquisitions are rare in the small to medium enterprise space. Also, unsecured cash loans must be backed up by a business that has demonstrable cash flow history and future.

Canadian banks will , and do provide cash flow term loans to firms where it can proven cash flow and profits and mgmt experience will support the amount of debt needed. Here it’s essential to have a good business plan and cash flow projection with realistic assumptions.

Although every industry can certainly be a candidate for buyouts it makes sense that your industry should be able to demonstrate operating in cyclical or economic downturns. That’s of course a challenge for any firm of any size.

Despite numerous challenges we’ve mentioned the ability to craft a successful management buyout or acquisition still makes tremendous sense. There are tax advantages to adding ‘ good debt ‘ to the balance sheet and smaller private firms are more ‘nimble ‘ and able to move more quickly in many market conditions and opportunities.

And what type of financing suits buyouts in the SME COMMERCIAL FINANCE space in Canada. Solutions include:

A/R financing/ Inventory Loans
Govt Small Business Loans (they are capped at 1 Million $)
Asset based financing
Non bank revolving credit facilities
Sale leasebacks
Commercial mtge refinancing
Bank term loans/business credit lines/ unsecured cash flow loans
Bridge loans

The ability to finance a company with the right level of debt without sacrificing ownership is a true win/win for owners. If you’re for the right type of buyout funding in Canada seek out and speak to a trusted credible and experienced Canadian business financing advisor who can assist you with your needs.

Stan Prokop