Acquisition finance is funding arranged to buy another business or its assets. Deals usually combine the buyer’s own money, borrowing and sometimes payments deferred to the seller. Lenders judge the target’s cash flow as well as the buyer, and every offer is subject to status and lender criteria.
At a glance
- Usual tax or duty on buying shares
- 0.5% of the price
- Stamp Duty on a stock transfer form applies when the price is
- Over £1,000
- Stamp Duty Land Tax non-residential threshold
- £150,000 (England and Northern Ireland)
- SDLT return and payment due
- Within 14 days of completion
- TUPE applies to a business transfer when
- The identity of the employer changes
What is acquisition finance?
Acquisition finance is borrowing arranged to pay for the purchase of another business, or of some of its assets. The buyer might be a larger company buying a competitor, a supplier or a business in a new sector, or an individual buying a company outright.
It is not a single product. It is a package, put together around a particular deal, which may include a loan, asset-backed borrowing, deferred payments to the seller and the buyer’s own cash. The sale itself is covered in our guide to buying a business; this page is about the money.
How do you fund the purchase of another company?
You fund a purchase by combining your own money with outside funding, matched to what is being bought. The table shows the main building blocks and where each tends to fit.
| Source | How it works | Where it tends to fit |
|---|---|---|
| Your own cash or reserves | Money the buyer puts in directly | Most deals include some, and lenders often want to see it |
| Term loan | A lump sum repaid in instalments over an agreed term | The purchase price, where the target’s cash flow can support repayments |
| Asset finance or a commercial mortgage | Borrowing secured on equipment, vehicles or property being bought | Deals that include equipment, vehicles or premises: see asset finance and commercial mortgages |
| Invoice finance | Borrowing against the target’s unpaid customer invoices | Funding working capital once you own the business |
| Seller finance | The seller is paid part of the price later | Bridging a gap between what lenders will advance and the price |
| Mezzanine finance | Junior debt that ranks behind the main lender | Larger deals that need more than the senior lender will provide |
Equity from an investor can also form part of a deal, but that is investment rather than debt. Capzy arranges debt finance, not investment.
What do lenders assess in an acquisition?
Lenders assess the target business as much as the buyer, because the target’s cash flow is what will repay the debt. They will want to see the accounts, the customer base and the reason the seller is selling.
- Cash generation: measures such as EBITDA and free cash flow in the target’s accounts.
- Price against value: whether the price is reasonable when compared with a proper valuation.
- The buyer: experience in the sector, the plan for integrating the business and your own credit and financial position.
- Security and guarantees: what the lender can rely on, which may include a personal guarantee from directors.
Each lender sets its own criteria and any offer is subject to status. A lender’s appetite for one deal says nothing about the next.
What does an acquisition cost beyond the price?
An acquisition costs more than the purchase price, because duty, advisers, due diligence and working capital all sit on top. Build them into the funding plan before you agree a price, or you may find the borrowing does not cover them.
| Cost | What GOV.UK or the lender process tells you |
|---|---|
| Duty on shares | You usually pay a tax or duty of 0.5% when you buy shares; Stamp Duty applies on a stock transfer form when the price is over £1,000 |
| Duty on property | Stamp Duty Land Tax applies in England and Northern Ireland, with a £150,000 threshold for non-residential property; the return is due within 14 days of completion |
| Professional fees | Solicitors, accountants and due diligence providers charge for their work; get quotes before you commit |
| Lender costs | Arrangement, valuation and legal fees may apply; ask each lender for its full charges before you accept |
| Working capital | Money to run the business in the months after completion, which is easy to underestimate |
Capzy does not give tax, legal or accounting advice. Ask an accountant to confirm the duty and tax on your structure, and a solicitor to run the sale agreement.
What are the steps to arrange acquisition finance?
Arranging finance runs alongside the purchase, and starting early avoids a deal stalling for lack of funds.
- Work out the total you need: price, duty, fees and working capital.
- Decide how much you will put in and how much you want to borrow.
- Gather the target’s accounts and your own, plus a business plan that shows how the debt will be repaid.
- Approach lenders, directly or through a broker, with the facts of the deal.
- Compare offers on total cost and conditions, not only the headline rate.
- Complete the purchase once the finance, the due diligence and the sale agreement line up.
Our guide on how to compare lender offers explains what to look for beyond the headline rate.
What are the risks of borrowing to buy a business?
The main risk is that the acquired business earns less than you expected while the repayments stay the same. Revenue can fall when an owner leaves or a customer is lost, and integration usually costs more than the plan allowed.
If the business cannot repay, the lender can use the security it holds, and directors who have given personal guarantees can be called on personally. Take advice early if repayments become difficult.
A deal can also fall through. Finance arranged for a particular purchase usually falls away with it, so keep to the lender’s conditions and check who pays any fees if the sale does not complete.
Can a smaller or newer business get acquisition finance?
Smaller and newer businesses can apply, but lenders look hard at trading history, so options may be narrower and may lean more on the target’s assets and on directors’ guarantees. Each lender decides for itself.
A buyer who is also a management team has its own route: our guide to the management buyout explains how those deals are layered. For other types of borrowing see the lender directory.
Where does Capzy fit in?
Capzy is a credit broker, not a lender, and is paid by the lender. We can introduce you to lenders that offer the debt parts of a deal, such as term loans or asset finance, but we do not arrange equity or investment and we do not give tax, legal or accounting advice.
You can check your funding options with a soft search that does not affect your credit score. A full application to a lender may involve a hard search, and any offer is subject to status and lender criteria.
Sources
- Tax when you buy shares, GOV.UK
- Completing a stock transfer form, HM Revenue & Customs
- Stamp Duty Land Tax: rates and thresholds, GOV.UK
- Business transfers, takeovers and TUPE, GOV.UK
- Business transfers, takeovers and TUPE: transfers of employment contracts, GOV.UK
Capzy is a credit broker, not a lender. We get paid by the lender. This page is general information, not financial, tax or legal advice. Finance is subject to status, lender criteria and affordability; rates and terms depend on your circumstances.