In a response to my recent memo on acquisition lending, my friend Gregory Kovsky with IBA in Bellevue, WA, wrote me the following.
…the lending community is putting a greater emphasis on relevant experience in the loan approval process than I have seen in my seventeen years as a business broker. I have seen several buyers with excellent executive experience turned down despite a 25% capital injection and a business acquisition that pencils satisfactorily from a debt service standpoint because the buyer’s experience does not dovetail with their potential acquisition.
Gregory is right, there is more scrutiny paid to experience these days. In fact, one of my clients had a bank not even look at a deal because he didn’t have direct industry experience (the seller was semi-retired and working part-time doing administrative work).
When discussing a management buyout recently, I told the owner the following three things:
You have a unique business and the skills needed to buy and price your product are crucial. Those skills require industry knowledge and years of experience.
A bank won’t lend to a buyer of your business if they are without direct industry experience. Since you will be financing part of the deal, why would you lend to a buyer without the proper experience?
The only real option you have is to sell to your managers.
Lending is all about getting paid back. If a banker feels a business buyer’s experience is inappropriate they won’t make the loan. The good news is, there are a lot of companies that need an owner with solid management and leadership skills, not specific technical skills.
Preliminary Survey Results: A survey of business owners shows that only 25% say “limited access to capital” is one of the top three negative factors affecting their business. The Great Recession is the #1 reason.
“You know it’s a good day when stringing Christmas Tree lights you finish with the plug right at the outlet.” John Martinka