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• 23 Oct

  Case Study About Funding A Business Purchase Using Invoice Finance

  This case study explores the concept of funding a business purchase using invoice finance, as acquisition finance, to fund a business purchase. It also suggests how you can overcome common acquisition challenges.

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  Case Study: Funding A Business Purchase Using Invoice Finance

  

  This was a case where invoice finance was to be used to fund the purchase of a company.

  Background

  A first-time business buyer approached us looking for an invoice finance facility to support the acquisition of a company. The plan was to use invoice finance as a solution to fund the business’s sales ledger, enabling the buyer to meet both the initial payment and future deferred payments to the seller. This case demonstrates how invoice finance can be used effectively during the acquisition process to facilitate funding and support ongoing working capital needs.

  The Plan

  The buyer aimed to utilise an invoice finance facility to unlock funds from the business’s sales ledger, helping cover the upfront payment to the seller. Additionally, the facility was structured to remain in place, providing the buyer with working capital and assisting with the payment of deferred instalments over time.

  The Process

  As a first-time buyer without the necessary legal and financial expertise, the buyer needed additional support to complete the acquisition. The financier added value by introducing experienced professionals, a solicitor to handle the drafting of the Sale and Purchase Agreement, and an accountant to perform financial due diligence on the seller’s company.

  During negotiations, the Heads of Terms, which outlined key aspects of the purchase, took several months to finalise. There were ongoing discussions between the buyer and the seller, particularly around the balance between the initial payment and the deferred payments.

  Due Diligence & Payment Structure

  Once the Heads of Terms were agreed, both the invoice finance company and the buyer’s accountant conducted their respective due diligence reviews. The invoice finance review confirmed that the sales ledger could generate sufficient funds to enable the acquisition to cover the payments, while the accountant examined the company’s financials in greater detail.

  The financial review raised questions about the company’s profitability, leading to a reconsideration of the purchase terms. The buyer chose to adjust the payment structure, reducing the initial payment and tying the deferred payments more closely to the company’s future profitability. This payment terms flexibility enabled by the invoice finance facility allowed the buyer to manage risk more effectively.

  Acquisition Checklist

  This acquisition highlighted several valuable lessons for the acquisition checklist of anyone considering a business purchase:

  1) Secure The Heads of Terms Early

  Finalising the Heads of Terms early in the process is critical to avoid prolonged negotiations. A seller who is clear and cooperative during this stage often leads to smoother progress in finalising the finer details of the transaction.

  2) Ensure You Have the Funds in Place

  Having a reliable source of funding, such as invoice finance, ready to support the purchase gives the buyer and seller confidence and ensures there are no delays when it comes to making payments for the initial consideration or deferred payments.

  3) Set Clear Boundaries for the Deal

  Buyers should have clear criteria for when to proceed with or reconsider the deal, such as price limits or timelines. This clarity can prevent unnecessary delays and help keep the transaction on track.

  4) Prepare for Setbacks

  Acquisition processes often involve unforeseen challenges, such as due diligence findings or timeline shifts. Flexibility and a proactive approach to dealing with these setbacks are essential for keeping the deal on course.

  5) Leverage Expert Support

  Working with knowledgeable solicitors, accountants, and an experienced invoice finance provider can make a difference in ensuring a smooth transaction. In this case, the professionals involved provided valuable insights that helped optimise the payment structure and manage potential risks.

  Conclusions About Funding A Company Purchase With Invoice Finance

  Invoice finance is a little-known and flexible solution for funding a company's purchase. It allows buyers to unlock liquidity from the target company’s sales ledger, enabling them to make initial payments, meet deferred obligations, and support day-to-day working capital needs. By having the right financing in place and working with the right professionals, buyers can simplify the complexities of an acquisition ensuring greater confidence and flexibility.

  This case serves as an example of how invoice finance can play a pivotal role in funding acquisitions, offering not only financial support that unlocks the structure of a deal like this.

  By Glenn Blackman