Financing the change of ownership
Financing the acquisition of a company or business
In corporate acquisitions, external financing is often an important part of the transaction, and securities and self-financing are important in the organisation of financing. When planning to buy a company or a business, you should contact potential financiers already at the beginning of the project.
Financing can only be arranged if the project is planned well and measures have been taken against the risks that it involves. Commitment from the owners and sufficient self-financing are essential requirements for a successful corporate reorganisation. The typical self-financing share is about 20% of the financing. In company acquisitions, the seller party may also provide some of the financing.
The financial structure of the transfer of ownership depends not only on the selected form of the acquisition, but also on the size of the acquisition.
Small acquisitions are mainly financed by a combination of a bank loan and a self-financing share. In larger deals, other sources of financing may also be involved in the financing solution.
Finnvera's solutions for financing the transfer of ownership
The most common source of external financing is a bank loan, the collateral of which is often covered by Finnvera's guarantee. The Finnvera Guarantee can be used in business and equity transactions. Finnvera’s guarantee coverage is determined on a case-by-case basis, and it usually amounts to 50–80% of the amount of loan or other financing commitment.
One part of the self-financing share may be covered by Finnvera's Entrepreneur Loan, which either is used to acquire shares in the entity subject to the acquisition or to capitalise the buying company.
Finnvera's SME Guarantee is suitable for domestic investments, product development and working capital. The SME Guarantee also allows for business transactions.
Finnvera's Growth Loan is a debt-based mezzanine financing product that enables the acquisition of companies and increases the company's self-sufficiency. The Growth Loan will provide sufficient self-financing to enable the realisation of the project with the bank. In addition to the Growth Loan, the project must have an adequate self-financing share and a bank loan. The Growth Loan is mezzanine financing, which means that it is in a weaker position than bank financing.
Carrying out the acquisition with the help of an auxiliary company
The option often used in a corporate acquisition is to use a so-called auxiliary company. An auxiliary company is a new company to be established, under the name of which the financing of the acquisition is arranged and the shares are purchased. Financing for an auxiliary company is usually provided by Finnvera and a bank, in addition to which self-financing is also required. In company acquisitions, a self-financing of 20% is typically required. The buyer can also acquire a self-financing share using a personal entrepreneur loan.
The financing required by the buyer can be reduced by, for example, redeeming the company's own shares. The acquisition is made within the limits permitted by the Limited Liability Companies Act and before the sale of the remainder of the shares. One option is also to separate non-business assets into a separate company.
Where can I find help with planning and implementing a change of ownership?
It is a good idea to utilise the help of experts in the transfer of ownership. Advice is available at Enterprise Agencies, regional business companies, entrepreneurs' associations, accounting agencies and brokers specialising in company acquisitions.
In addition, the Suomi.fi website contains comprehensive information on the implementation of a change of ownership or a corporate acquisition.
