Funding Business Mergers & Acquisitions

If you’re thinking of growing your business through a merger or acquisition, have you thought about how you’re going to fund it?

What funding sources are available?

In the simplest terms, M&A activity is funded through three sources - internal company resources, debt and external equity or sometimes a hybrid option of all three.

Many businesses looking to fund an acquisition can now choose from a variety of options including cash reserves, debt, equity, invoice finance and hybrid instruments including convertible bonds, exchangeable bonds and equity-linked bonds.

Cash reserves allow firms to use internal funds without raising new capital but this can limit liquidity. Debt financing through bank loans, bonds or leveraged buyouts can often be attractive due to the tax deductibility of interest payments for certain non-trading assets, but it increases financial risk and leverage.

Equity financing, involving issuing new shares, rights issues or stock for stock transactions, avoids the repayment obligations of debt but dilutes existing shareholder ownership.

Hybrid instruments like convertible bonds or preference shares combine aspects of both debt and equity, offering flexibility but also complexity. Private Equity and Venture Capital can also play a role especially for high growth firms, though these investors often demand significant influence over decision-making and may insist on having a seat on the Board.

The cost of Capital is a key consideration as debt tends to be cheaper but increases leverage, while equity avoids debt risk but dilutes ownership.

Professional legal and tax advice needs to be sought to determine the best solution for investors.

What should you consider when looking at funding for a merger or acquisition?

It’s also important that organisations looking to grow through acquisition consider securing funding before they need it.

Being pre-funded offers several advantages for companies during M&A processes. It allows you to act quickly and with greater certainty, making your bids more attractive to sellers. Pre-funding also strengthens your negotiation position, enabling you to secure better terms. It also takes a layer of complexity out of the transaction.

From the seller’s perspective, knowing the buyer is pre-funded improves credibility around the offer and can reduce the risk around the deal falling through.

What are the current market conditions?

The latest SME Confidence Tracker, which takes into account the opinions of 220 SME leaders, illustrated that Irish business leaders have both the ambition and inspiration to grow their businesses, but they don’t always have the finance they need, when they need it most.

Of those leaders who have secured finance, 53 per cent say their incumbent bank or financier have reduced the amount of finance or credit made available to them in the past few months and that over the last year, a third of SMEs say their business has been rejected for external finance. This is devastating news to businesses seeking to grow, especially when Ireland is in a fantastic position to attract investment.

Recent Davy Research shows that Irish M&A volumes defied expectations in 2023, where there were 405 M&A deals, a nine per cent decrease on 2022. But this is a resilient performance when measured against a 23 per cent decline in global M&A volumes. If we look at the pre-covid era (2018 – 2019), 2023 transaction volumes were 38 per cent above the pre-covid average of 294 deals in Ireland. And in the first quarter of 2024, deals in Ireland increased by 14 per cent.

What factors are driving the M&A and MBO market?

Ireland’s businesses have come under a number of pressures recently including increasing costs and inflation but this has not prevented them from seeking to grow.

Bibby Financial Services has seen a number of customers engage in discussions over expansion whether through Mergers and Acquisitions or Management Buy In/Management Buy Out activity. Some have looked into moving premises, investing in infrastructure, equipment, succession planning, machinery and Research and Development.

This is a significant upturn on last year where businesses were looking at how to survive day to day, where most of the demand was related to working capital and cash flow.

Increased activity in M&A in the Irish market is being driven by a combination of economic stability, strategic access to the EU, industry consolidation, technological advancements, availability of capital and a desire for strategic positioning and diversification.

What’s clear is that this recent shift to alternative funding options to fuel M&A and overall growth aspirations indicates that there’s an increasing requirement for more collaboration across traditional banks and independent financial providers. Businesses need to access a spectrum of financial services options.

The good news is that growth is projected to continue into 2025.

Which industry sectors are looking at the merger & acquisition market and why?

Bibby Financial Services works with a number of industry sectors, helping businesses looking to grow access the financial options that they need. But what are they using the financial solutions for?

Irish food and beverage companies are looking for businesses that offer innovative products, technologies or processes that can enhance their edge. Critically, organisations are exploring advancements in food technology practises and pre-empting changing consumer habits.

Technology organisations are focused on acquisitions related to AI, cybersecurity and cloud capabilities due to the rapid pace of digital transformation.

Energy companies are consolidating to improve efficiencies, particularly within the upstream oil and gas sector while also exploring renewable energy sources.

Healthcare continues to see strong M&A interest particularly as pharma companies seek biotech acquisitions to fill gaps in their product pipelines, primarily caused by expiring patents.

Increasingly interest is growing in distressed M&A opportunities, in retail and hospitality where margins are being squeezed. Companies are looking to sell off assets or restructure to manage high debt burdens.

Corporate dealmakers are prioritizing long-term strategic value, business transformation and targeting recession-resistant industries to weather ongoing economic uncertainty.

Covid spurred many business owners to consider their future, including opportunities to acquire or merge with other businesses.

Businesses are veering away from taking on too much debt and are looking instead at options which do not add to their debt portfolio.

How can you use Invoice Finance for funding a merger or acquisition?

Take two businesses. One with €500,000 and the other with €5,000,000 currently owed by clients. By utilising Invoice Finance, you’ll get access up to 90 per cent of the invoice’s value within 24 hours meaning you can get paid large sums of money fast. The remaining balance will be paid to you, minus an agreed fee, when the customer has paid their invoice.

Unlike a loan or overdraft, Invoice Finance does not involve ongoing monthly repayments. It’s a revolving credit option which means that once your invoices are paid, you continue the cycle of uploading your invoices, drawing down the funds and repeating.

Bibby Financial Services has recently launched Cashflow Advance, a solution that provides up to one hundred per cent funding against a client’s approved sales ledger. By combining Cashflow Advance with an Invoice Finance facility, you have the ability to access the funding you need to seize new opportunities to drive growth.

The benefit is in having access to multiple funding options compared to a fixed line of credit.

How can Bibby Financial Services help you?

Bibby Financial Services facilitates over €1million on average a week in new funding limits, in addition to the millions in weekly payments to existing clients, supporting a variety of sectors including Manufacturing, Wholesale, Recruitment, Construction, Transport and Haulage, Food and Beverage as well as Business Services.

For instance, Imbibe Drinks, trading as Newport Brands, a Bibby Financial Services client, recently acquired C&C’s soft drinks portfolio as part of an MBO. The business now aims to double the portfolio’s current turnover of 14 million in five years by investing in the existing brands and extending distribution deals.

Newport used a hybrid funding approach provided by Bibby Financial Services. Having access to a flexible solution is key.

Our partnership with PTSB

Bibby Financial Services has a strategic partnership with PTSB which offers their customers invoice finance services and an enhanced range of funding options designed to improve cash flow and fund growth ambitions.

The relationship between one of Ireland’s leading retail and SME banks and a specialist lender is one of the first of its kind in Ireland and is currently transforming the Irish Financial Services landscape.

It’s also worth noting that as Ireland remains the only English-speaking country in the EU, it has become a popular hub for multinational corporations looking to maintain or expand their presence in Europe. This is particularly appealing for companies in the food and beverage sector looking to streamline their supply chains and distribution networks. But there are advantages to all sectors because of Ireland’s market position.

When preparing for M&A success it’s vital you understand the business landscape you’re operating within, that you surround yourself with experts prepared to discuss and enable hybrid funding options, and that you have a clear growth plan. Many people are involved in an M&A negotiation, so it is imperative you trust your selected team.

Being pre-funded offers you an incredible advantage, giving you the chance to capitalize on opportunities before your competitors.

When it comes to acquisitions, mergers, management buyouts, succession planning or capital expenditures, Bibby Financial Services offers a variety of tailored funding options to meet your needs, whatever stage in your business cycle. Our partnership with PTSB ensures we can offer comprehensive financial solutions to meet the volatile conditions businesses face today.

As M&A activity rises in the Irish business landscape, you want to be sure you’re supported by a financial services company that understands evolving needs.

Want to find out more?

Bibby Financial Services has been shortlisted in two categories at the prestigious Financial Services Awards 2024 – Specialist Lender Award and Customer Experience Award.

To help you find the best solution for your business, our team of business funding experts are on hand to make sure you make the right decision. Contact us or call the team direct on (01) 506 0153.