Business acquisition loans
There are many ways that an investor can enter into the business world. The two typical forms are starting from scratch of through acquiring an existing business. Business acquisition basically means acquiring a company in order to revamp it or just gain from its strengths. In fact, the recent happenings between American and Chinese Companies exemplify this scenario.
Risdon International Limited, for example, acquired the Chinese plastics manufacturer Inmagine Plastics (Technology and Packaging) and later renamed it. This is different from a merger which means combining all the interests of both companies so that one strong company is built. The conclusion of both systems is to quicken the growth through the new synergy.
Business financing acquisition
Although there are different modes that can be adopted to finance an intended acquisition, the use of loans from commercial banks and other financial institutions is the most common method. Business acquisition loans are funds borrowed for the sole purpose of purchasing or merging with another business either by stock purchase or by private equity.
There are various factors that a lending institution will take into consideration before issuing a business acquisition loan. For example, the borrower’s credit history or rating by stakeholders. This basically means that his/her previous transactions in the market will be used to gauge whether they can qualify for the loan.
The second most important consideration will be the cash flows of the acquired business and the acquiring business. This is quite critical to the banker as it gives them the comfort that their loan will be repaid. As is always the case, business acquisition financing will involve much more than the accounting and loaning particulars.
Legal issues and participation of lawyers
Business acquisitions are basically legal contracts between two businesses. As you may recall, contracts are simply agreements that are binding on the weaker party (Frederick Sawyer). While this may be considered as an extreme view, there is always an imbalance in such negotiations.
Parties have an opportunity in the initial stages of the negotiations to influence the outcome of the transaction, that is, whether to buy or sell all the shares of the Company or all its assets. These issues need to be addressed from the outset. This scenario is easily settled according to the negotiating strength and position of parties.
General scenarios include
- Acquiring the control of the business assets without any of its liabilities both past and present; and
- Acquisition through a share sale will occur when the buyer takes over everything including the known and unknown liabilities of the acquired company. This is the position that is usually taken if the company being acquired is of little or no financial strength.
A share and asset acquisition will always give one leverage in the sense that there will be fewer hurdles in the usage of the company’s’ assets. In fact, in it will be possible to use the assets of the acquired company to owner finance the business acquisition.
In a share sale, the buyer effectively acquires everything. Both known and potentially unknown liabilities form part of the transaction because the contract comes in whole.
The advice of lawyers and tax consultants will be of great relevance in as far as the structure and legality of business acquisition transactions are concerned.
References
- http://findarticles.com
- http://www.burtondyson.com
- Mergers_and_acquisitions
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