Debt capacity from a business seller’s perspective

On 3 August 2015 the former CreditSquare highlighted a contribution by Dan Barrett to BusinessesForSale.com. His subject was preparing for a sale from the seller’s side. Assessing what the business could borrow, or discussing a potential financing package ahead of the sale, could help the parties judge which bids were achievable.

What a seller can prepare

A buyer may arrive with an attractive price but little evidence about how it will pay. Before granting exclusivity, a seller can ask what comes from equity, which lender has reviewed the transaction and which conditions remain. It can also prepare figures for cash conversion, recurring capital expenditure and existing security so a lender can test its assumptions.

Where the seller is offered deferred consideration, the timing of those payments matters alongside the headline price. Compare the proposed instalments with the acquired company’s other debt payments. The May article note explains the wider transaction structure.