IMM Financial is a Merger & Acquisition Finance Company with different Merger and Acquisition Strategies depending on case at hand. Most often when looking at a M&A deal, there will be sufficient assets in the company to leverage these assets sufficiently to free up the necessary cash to payout the existing shareholders or lien holders of the company being acquired. We are experts at leveraging the assets to help the company achieve its end game.
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Most often this can be done with leveraging things such as Accounts Receivables, Equipment and Machinery, Rolling Stock as well as Real Estate.
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The Accounts Receivables would be entered into an Accounts Receivable Factoring facility which would essentially liquefy the Receivables up to 85% or 90% of their face value. In reality this is taking an advance on money the company is due regardless of the Merger and Acquisition. For most accounting purposes, this is not considered a liability so I will not affect the Balance Sheet of the company.
If you were to use a Traditional Line of Credit or Business Loan this will show up as a Long-Term Liability and will affect the Balance Sheet as showing a significant amount more debt that if the Accounts Receivable Method of Business Financing had been used. What’s more is this Accounts Receivable Factoring Line will be in place from month to month so there will be no debt servicing / no loan payment because the payments that are received from the debtors will pay the balance down, and new invoices will replenish the available funds for operations on a monthly basis.
Accounts Receivable Factoring:
When entering an Accounts Receivable Factoring Program for a Merger and Acquisition the most important thing for this part of the M&A Financing is not the strength of the company being acquired and not the strength of the company that is doing the acquiring, the real focus is on the strength of the Debtors that are responsible for paying the outstanding invoices.
Many times with Factoring Facilities, especially under a M&A situation, Credit Insurance will be taken out to insure the Receivables, especially when there is a high concentration of debt within a few key customers. What is referred to in this case is that if you have customers that have higher than 20% of the entire book of Accounts Receivables, then this will be considered to be a higher risk because if these customers do not pay their Invoices, this will have a drastic impact on the Accounts Receivable as a whole.
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The Equipment and Machinery can be put into a Sale-Leaseback Program where the equity that has been build up in the Equipment and Machinery. The funds from the liquidation can be used for whatever purposes the management of the company wishes to use it for unless there are certain covenants that are placed on the use of funds specific to the M&A. Typically you can expect a 60% to 70% Loan to Value against the assets. Again, this is not seen as an actual Liability for the Debts of the company Balance Sheet. It is only a monthly payment and not a lump sum debt.
Rolling Stock such as Trucks, Trailers, Busses, Forklifts, Golf Carts, Cars and the like can also be done in a Sale-Leaseback Program. Many time different sources need to be utilized for different types of Sale-Leasebacks as not all Programs that work with a CNC Machine for example will work with a Transport Truck and Trailer.
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When looking at a Sale-Leaseback for Mergers and Acquisitions there are several factors to take into consideration. The first is the strength of the Company that is doing the actual Merger or Acquisition. Unlike in an Accounts Receivable Factoring Program that has a third party paying the advance back, the Leasing Company is taking the Acquiring Company as the new Credit Risk. If they do not pay, they will have to look to their assets as a whole to recover the funds they have advanced. In a M&A situation, the value of the assets in the company being Acquired can be devalued to the point of liquidated value. This basically means that the Leasing Company is looking at the value of assets in the poorest situation. If they had to sell the assets tomorrow in an auction, what would they get for them? This is the liquidated value that they would likely use.
The raw materials, work in process and the finished goods inventory can also be leveraged. We would look at the liquidated value of all these items to give a Line of Credit against them. As the Inventory is sold, this would reduce the liability of the advance because the Accounts Receivable Factoring would actually be set up to offset the reduction in Inventory Value. In this case, there would not be any actual payments being made to the Inventory Lender as the payments would come from the Accounts Receivable Factoring Facility. You would expect an advance between 50% of cost of goods or 75% of appraised liquidate value.
Real Estate would be appraised and a Loan to Value would be established as to what the amount of loan would be given based as a percentage of the value of the land and buildings. Again, the liquidated value would be used in this situation as it would be for the Sale-Leaseback. In some cases, a Sale-Leaseback can also be done on the land and building.
If your company is looking for options for your Merger and Acquisition of a competitor, or perhaps you are currently an employee of a company looking to take it over, or you an outside company looking to do a Turnaround of the company, IMM Financial has the resources to put it all together for you to make the process as clean and streamlined as possible. Take a few moments to fill in the form below and one of our M&A Specialist will be in touch with you shortly.