Mergers & Acquisitions Advisory

A Neumann & Associates, LLC

June 12, 2016

The Acquisition Lender – The Party With Most Impact On A Business Sale

By Joseph Eneldas

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There are many situations in which a business buyer and business owner reach an agreement to transfer a business, but ultimately fail to have the proper acquisition funding in place to actually close the deal.

“We frequently experience scenarios where a business buyer is motivated to move full steam ahead with an acquisition once he has clinched a deal with a business seller, only to recognize that several major hurdles are still ahead,” says Achim Neumann, President of A Neumann & Associates, a New Jersey based mergers & acquisitions and business brokerage firm.  “One of these hurdles is successfully completing due diligence, but a much bigger hurdle can actually be raising acquisition funds from a lender.”

Most transactions under $5 million involve some type of SBA financing.  While somewhat costly in fees, this is often the preferred method for buyer acquisition lending, as access to conventional commercial financing is often not available.  Contrary to common belief, the bank really is the ultimate lender, but with a guarantee by the SBA for the majority of the loan amount.  By definition, this imposes certain SBA requirements on the loan, such as a certain amount of equity in the business.

For example, if the goodwill in an acquisition exceeds $500k, then the SBA requires 25% equity in the deal.  If the buyer’s cash down payment alone does not meet the 25% hurdle rate, a seller note can be added.  However, if a seller note is required, it usually cannot be paid back for two years!  This provision might be a significant negative factor for the seller, especially if he or she had counted on the incoming cash flow as a substitute for continuous business income.  This new wrinkle can ultimately kill a deal, long after buyer and seller believed they had completed negotiations.

“Another factor often overlooked is the proper valuation of the business,“ says Frank Arcoleo, Managing Director.  “It goes without saying that an acquisition lender will not provide funding if a business valuation by a national, SBA qualified, accredited valuation firm is not in place.”

Ideally, the business valuation should be put in place long before the business goes onto the market.  However, we have found that many business owners will attempt to save such “upfront” expense because it’s not guaranteed that the business will indeed be sold.  Once a deal is in place between buyer and seller, and the buyer is seeking bank lending for the business acquisition, it can cause a major delay to put a valuation into place at that late date.

In sum, business buyers and sellers need to recognize that in most cases the acquisition lender has a significant impact, not only on the deal structure but also on the final outcome — namely, whether the deal is closed at all.  Therefore, both parties should seek professional advice from qualified M&A advisors and business brokers to facilitate a proper deal structure between both parties in the early stages, long before a deal is presented to a bank.

About A Neumann & Associates, LLC

A Neumann & Associates, LLC is a professional mergers & acquisitions and business brokerage firm having assisted business owners and buyers in the business valuation and business transfer process through its affiliations for the past 30 years. With an A+ Better Business Bureau rating, the company has senior trusted professionals with a deep knowledge based in multiple field offices along the East Coast and has performed hundreds of business valuations in its history. The firm’s competitive transaction fees are based on successfully completing transactions. For more information, please contact A Neumann & Associates at 732-872-6777 or info@neumannassociates.com

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“I've always had great respect for those who are excellent in their fields of endeavor. Gary certainly lived up to that standard. He was knowledgeable, persuasive, determined and ultimately the main driving force that culminated in the very successful sale of my business. Well done Gary!”

Stuart Zeiff, Seller

“ I appreciate your diligent approach to screening buyers and sellers as well as the high quality CIM that you produce.”

Andrey O, Investor

“Finally enjoying retirement after recently selling my business using the services of A Neumann & Associates. Joe Oddo provided the conduit to a successful transaction. Joe knew when to inject input and when to simply listen and allow the buyers to vent, step back and regroup. The outcome met our expectations and got us to the finish line, which included my staying with the company six months in order for the buyers to get their footing and keep our workforce in the loop. He helped at every step by providing his expert guidance & resources. Thank you!”

Emily Parker Myers, Co-Owner - Myers McRae

“I had been in touch with Karin and Gary from A Neumann & Associates regarding some opportunities and was looking forward to meeting with them. Hence, when they organized a seminar in Princeton, NJ, I was quick to sign up. The seminar was very informative as the team walked the attendees through various scenarios and referenced real life buying/selling situations they had been through. The sessions by Gary, Karin and Achim were crisp and focused and brought clarity to potential seller and buyers. I strongly recommend the team and look forward to continue working with them.”

Gaurav Tyagi

“Thank you for your Event on "How to value, Sell, and Buy A Business for Maximum Profit" and the insight into ANA’s approach on what is involved in the Business Exit for sellers. Garys Hervieiou's "Business Valuation", Achim's "Deal structure" presentation and Karin’s "Preparing the Package" are real street knowledge shared. They answered attendees questions which makes it more interesting for learning from others. Great for small businesses like us. The presentations were totally worth our time and travel for the event to Princeton, NJ from Rockville MD. Ravi Bhutani, President, CIPS”

Ravi Bhutani

“Gary, this is to thank you for an excellent job done in selling our business. We could never have done it without your professional expertise, dedication and time put in without reservation to make it happen. We will gladly and highly recommend you to anybody in our position.  It was a pleasure to work with you.”

Pat Iammatteo, Owner

“Your vetting is simply outstanding, among the best I've seen from a broker.”

Eric H., Investor

“I recently contacted A. Neumann and Associates about getting a valuation of my business done. I spoke with Marc, who explained the process in detail. After meeting with Marc in order to get a clear understanding of my business, and what I was hoping to accomplish. His patience in answering all my questions and his knowledge of the proper way to market my business gave me great confidence that this is the firm I will be using to sell my business for max value. Working with Marc at A Neumann & Associates was very easy and professional. I did not know all that was going to be involved in selling my business but they helped me through the process. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. I highly recommend this firm to anybody who wants to sell now or down the road. Marc not only knows his stuff, but actually is a real nice guy.”

Double Diamond

“Used A Neumann & Associates to sale my business. could not imagine having done it with out the patience and experience Gary provided. Thanks Gary,”

Dennis Frazier

“Working with Marc and his company was a pleasure. What I thought was going to be a just another one of those pushy sales companies was just the opposite. Polite, knowledgeable, and a pleasure to talk to and deal with. Marc handled most of the interaction and he has one of the greatest demeanors. Again, it was a pleasure working with him and his firm.”

Douglas DiCeglio
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If you are considering selling your business, please contact us to learn more about our comprehensive service spectrum. Our experienced professionals will answer all your questions about selling a privately held business in complete confidentiality. Please fill out our contact form, or call us at 732-872-6777. We will contact you directly and will never identify ourselves to your employees.

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