Challenging the Acquisition Myth
There remains a widely held belief in the market that business acquisitions are impossible without substantial personal investment. While such deals are certainly complex, they are by no means unattainable, provided the right professional expertise is engaged.
This case involved the purchase of a well-established, family-owned security firm that supplies personnel to venues across the UK. The buyer, formerly the company’s Operations Manager, had a clear understanding of the day-to-day operations but sought assurance that the financial underpinnings of the business justified the agreed £1 million valuation.
A Deep Dive into the Business
The client engaged a professional team to lead on accounting, tax due diligence, and formal valuation. Central to the process was assessing the health of the business, ensuring there were no hidden liabilities, and establishing whether the financial history supported the asking price.
A detailed examination of five years’ financial records was undertaken. This included evaluating existing financing arrangements to ensure continuity and confirming that no adverse cash flow implications would arise post-acquisition.
Importantly, the buyer lacked the personal capital typically required to fund such a transaction, presenting a structural challenge that required both creativity and rigour.
A Deferred Consideration Structure
Following a full valuation, advisers concluded that the company’s true worth was closer to £1.2 million, taking into account cost adjustments that would not apply under new ownership. The negotiated purchase price of £1 million was therefore deemed fair.
To bridge the funding gap, a deferred consideration model was adopted. This allowed the buyer to pay for the business over a period of four years, contingent upon the firm maintaining historic profit levels.
The terms of the deal were structured as follows:
Payment Milestone Amount
On Completion £200,000
End of Year 1 £200,000
End of Year 2 £200,000
End of Year 3 £200,000
End of Year 4 £200,000
Total £1,000,000
Should profitability fall below a specified threshold, the agreement allowed for a revised valuation and adjusted deferred payments, giving the buyer protection against overpaying for a business whose future earnings might not match past performance.
Corporate Structuring and Completion Funding
The final challenge was sourcing the initial £200,000 completion payment. The buyer, unable to secure personal financing, established a new holding company through which to acquire the trading business. This not only opened up more flexible financing routes but also created potential future advantages in terms of exit strategy and tax planning.
The trading business held an underutilised invoice finance facility. This was leveraged to draw funds, which were transferred via an intercompany loan to the newly formed holding company. These funds were then used to satisfy the upfront payment to the vendors.
The structure allowed the acquisition to proceed without the buyer using any personal funds, achieving a secure, tax-efficient outcome that met the needs of both parties.
