Planning an acquisition loan

Reconcile the purchase price to the amount borrowed

Start with a sources and uses table. On the uses side, record cash paid at completion, fees, any existing debt to be settled and the cash the company must retain to trade. On the sources side, record the buyer's cash contribution, senior debt and other committed funding. Deferred consideration remains a future cash outflow even when it reduces the cash paid at completion.

Suppose the seller wants £2m now. A buyer expects £60,000 in transaction costs and wants £140,000 of extra working capital. Its immediate uses total £2.2m. With £700,000 in cash equity, the remaining requirement is £1.5m before any fees deducted from the advance. If a lender charges a 1% fee on a £1.5m facility and deducts it, the buyer receives £1,485,000, leaving £15,000 to cover.

Establish where repayments will come from

Build a combined cash-flow forecast and test a case where integration takes longer than planned. Account separately for payroll, taxes, additional inventory and payments to the seller. A profit forecast that omits the initial working-capital need can conceal the tightest month.

Put the target accounts, management figures, sources and uses table, buyer contribution and security position in the funding brief. Identify which documents are still subject to diligence. Price, repayment dates and reporting covenants belong together when you compare proposals.

What historical transactions can illustrate

The former CreditSquare advised on a £2m facility supporting Tavistock's acquisition of Abacus. Its historical transaction record distinguishes the transaction purpose from the type of funding. A historic deal provides context rather than an offer of the same terms today.