There are more mergers, acquisitions and successions due to retirement today than we’ve seen in a while and that trend is sure to continue. With cash flow lenders tightening credit it may be that alternative financing or Asset Based Lending (ABL) is now the best tool for the job. For starters it helps clarify the value of the tangible assets so more attention can be paid to the intangible ones.
Whether buying or selling, the added transparency that ABL provides is a benefit to all parties. It saves time and expense and allows negotiations to focus on getting a deal done. The added benefits and flexibility of ABL more than offset the additional costs involved.
A business financed by ABL is in effect being audited every day. The lender or lenders understand the assets and their value and are expert in managing them. Their numbers can be relied on because they put their money on it.
With the greater leverage that an ABL facility offers it can sometimes create additional working capital. Cash that can be used to pay off uncooperative investors, retire debt with high interest or unfavorable terms and lower overall payables. In general terms, to clean house and improve the balance sheet.
Some cash flow lenders look at a change in ownership as if it were now a start up, which can mean a year or two before it’s taken seriously. This might be a problem for the new owners. ABL lenders do not have the same concerns and can support them during the transition and later with rapid growth if needed.
Personal guarantees (PGs) can be problematic in some situations, especially when a vendor take back is involved. Alternative lenders are more flexible when it comes to PGs because of their focus on the assets. Not only can they help to close the sale but they can also be instrumental in managing and enforcing any payment plan.
I hope more M&A advisors will consider alternative financing and ABL in some of the more challenging deals they are sure to encounter this year and next. It could make the difference between failure or success by both sellers and buyers.
I would love to hear your feedback or answer your questions. How about we have a chat about your deal or alternative finance in general? Book a Call and let’s get started.
