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

800px-DCTC-Business-Entrepreneur

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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Client Testimonials

“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

“I recently completed an acquisition using A Neumann & Associates. Tony Valentino was very helpful and accessible during the entire process. They do a thorough job vetting both parties and got us to the finish line.”

Srini Mudambi

“Claus out of Florida helped us with the sale of our business. We had never done anything like this and him and his team walked us through the process from start to finish. We had some challenges through the process and Claus continued to show up even in the difficult conversations.”

Colby Harris, Co-Owner, Del Mar Designs

“Claus Madsen thoroughly helped us with selling our company. From the 1st introductory meeting explaining to us what was possible, to providing us with resources to assist with the sale. Claus was invaluable throughout the whole sales process. Claus was with us every step of the journey and always made himself available for any questions or issues that came up along the way. If you are interested in selling your business, I encourage you to reach out to Claus and the ANA team so that they can let you know what’s achievable. These guys will make it happen!”

Ron Harris, Co-Owner and Vice President, Del Mar Designs

“A Neumann & Associates is the only business broker I would use or consult with. They have assisted with 3 business sales over the past 15 years with me. They are honest and sincere and have always performed better than my expectations. They are the only one i would use for the sales of my businesses.”

James Belanger, Business Owner

“I wanted to take a second to commend the exemplary customer service from both you [Karin Neumann] and Mr. Valentino. It’s both a rarity in the industry, and very much appreciated.”

Andrew G., Investor

“We worked with Neumann & Associates to investigate the purchase of a research company in 2010 and found Achim to be capable, forthright and realistic. His depth of experience enabled us to fully understand our options, offering creative options that might enable the acquisition. While we didn’t acquire that particular company at that time, we know exactly who to call whenever we’re looking to buy or sell a business.”

Daniel Coates, Buyer

“Purchasing a business through this firm was a pleasure. Gary was very professional and transparent throughout the entire process. I look forward to working with A Neumann & Associates in the future.”

William Klemens, Buyer
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Contact A Neumann & Associates, LLC

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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