Raising funds for mergers and acquisitions
Mergers and acquisitions are a legitimate way for companies to achieve growth in an uncertain economic climate. Whilst funding through traditional means remains an issue, there are other options for savvy businesses.
Businesses continue to look at mergers and acquisitions (M&A) as a way to take a legitimate step forward and improve their market offering.
Whilst Australia’s taste for M&A has matured somewhat, Ernst & Young's (EY) Australasia Global Capital Confidence Barometer for May 2016 showed that 76 per cent of respondents still expect M&A to either improve or level out in 2016.
Though mergers and acquisitions are often associated with the big end of town, SMEs can also benefit from efficiencies and economies of scale gained by acquiring complimentary businesses.
However, as banks face uncertain economic conditions and more stringent regulation, raising capital for a merger or acquisition remains a problem for many businesses. The EY Barometer indicated that only 26% of surveyed businesses are positive about their credit availability and a sizeable 86% have had to pull out of a merger or acquisition with question marks around affordability in the current economic landscape.
Capitalising on opportunities
Merging with a complimentary business can deliver many operational and marketing benefits, making the missed opportunity cost a relatively high one. To capitalise on the opportunities that do exist, Australian businesses need to look outside the traditional funding avenues.
Businesses that sell to other business on credit terms may find that a Debtor Finance facility from a non-bank lender like Classic Funding Group, may be a solution for raising required capital, with access to 85% of the value of the ledger available within 24 hours of approval.
For example, a company requiring $500,000 for a M&A can raise this sum through a confidential debtor finance facility from a $590,000 debtors ledger. The company would not need to change their invoicing and collections processes or advise their clients of their financing arrangements. They would simply need to upload their ledger to an online portal and the funds would be available to them the next business day.
The EY Barometer indicated that only 26% of surveyed businesses are positive about their credit availability
Another funding option is for these companies to combine a Debtor Finance facility with an Equipment Finance facility in what Classic Funding Group calls an ‘Integrated Finance Solution’.
In instances where a company owns high value assets for example trucks, trailers, wheel loaders, conveyors, large format printers etc, these assets can be effectively sold to the financier and leased back in an Equipment Finance solution called ‘Sale-Back’. Together with funds made available through the Debtor Finance facility, the capital raised can be used for a merger or acquisition. Assets from both the company being acquired and the acquiring company can be used to pay for the acquisition.
So whilst EY reports that “Financiers are becoming more cautious around exposures and are managing portfolios and not lending to certain industries and sectors”, to capitalise on the opportunities that exist in the current market, there are alternate funding methods that are worthy of consideration.