Funding a bolt-on acquisition: what changes when your business is already trading
How to fund a bolt-on acquisition when your business is already trading: how lenders judge the two firms together, and paying for the deal and the integration.
Reading time5 min read
CategoryBusiness guides
Written byThe bizbritain team
A bolt-on acquisition means buying a competitor, or a smaller business in your own field, and joining it to the one you already run. It is usually funded with a mix of retained profit, a business loan and money left in the deal by the seller. The lender judges the two businesses together.
That last point is what makes it different from a first purchase. You are not a newcomer asking a lender to trust a stranger's figures. You already have accounts, a track record and a business that can stand behind the loan.
This guide is for an owner who is trading profitably and is thinking about buying the business down the road. It covers why owners buy, how a lender looks at the deal, and how to fund the price and the costs that come after it.
Section 01
Why owners buy a competitor rather than build
Buying gets you customers, staff and capacity on the day the deal completes. Building the same thing can take years.
The deals in the news this week show the pattern. On 1 October, IT and communications firm Flotek Group announced its 17th acquisition, a network infrastructure business in Fife. On 5 October, Business Sale Report said financial services group TEAM plc had agreed to buy a Lancashire wealth manager for £3 million, five times its pre-tax profit.
Most owners will never make 17 purchases. The first one is the hard one, because it sets the shape for everything after it.
Common reasons to buy rather than build:
Customers: the target brings contracts and regular buyers you would otherwise have to win one at a time.
People: skilled staff come with the business, which matters when hiring is slow.
Territory: a business in the next town gives you a base without opening from scratch.
Capacity: extra equipment or premises can let you take on work you currently turn down.
Section 02
How do you get a loan to buy a business when you already run one?
Usually your existing company borrows the money and buys the target. Some owners set up a new holding company to make the purchase instead. Either way, the lender looks at the combined business after the deal.
That works in your favour. Your own trading history gives the lender evidence it would not have for a first-time buyer. Your existing business can also offer security. That usually means a charge over its assets, which gives the lender a claim on them if the loan is not repaid.
It also cuts the other way. If the deal goes badly, the business you built is exposed too. A lender will want to see that the purchase does not put the original business at risk.
Section 03
How a lender looks at a bolt-on acquisition
Lenders vary, but most will look at the same five things.
Combined profit
Your profit plus the target's profit, adjusted for costs that will go or be added. This is the figure the new repayments come out of.
Room to repay
The lender checks that the combined profit covers all loan repayments, old and new, with room to spare. A deal that only just covers them is a weak one.
The price you are paying
Small business deals are often priced as a multiple of profit. A lender will ask how you reached the price and whether the profit behind it is real.
Your own contribution
Most lenders expect the buyer to put money in. For an established owner this often comes from retained profit in the existing business.
Your plan for joining the two
Who runs the target, which customers might leave, and what changes in the first year. A clear plan shows the combined profit is achievable.
Due diligence is where the target's figures get tested. Our guide to due diligence when buying a business covers what a lender will want to see.
Section 04
Funding the deal and the integration
The price is only part of the money you need. Joining two businesses costs money too, and the purchase price leaves it out.
Here is a labelled illustration, not a quote. You run a business making £200,000 a year in profit. A competitor makes £100,000 and the seller wants £400,000, four times profit.
Retained profit: £100,000 from your own business as the deposit.
Money left in by the seller: £60,000, paid to them over two years after completion.
Business loan: £240,000 over five years, repaid from the combined profit.
Integration budget: £40,000 for systems, signage, training and a few months of overlap.
The integration budget is the line owners most often miss. Moving customers onto one system, changing branding and keeping two teams running for a while all cost money before the savings arrive.
Money left in by the seller does two jobs. It reduces how much you borrow, and it gives the seller a reason to help the handover go well.
Ask about fees and early repayment before you commit. Some loans charge for paying off early, which matters if the combined business will generate cash quickly.
If you are planning several purchases over time, the structure changes. Our guide to funding a buy-and-build explains how repeat buyers set up their facilities.
Section 05
Before you make an offer
Get your own accounts and management figures up to date first. A lender will read your business before it reads the target.
Then work out what you can afford to pay, not what the seller is asking. Build the combined figures, including the integration costs and a slower first year.
An acquisition finance broker can look at the deal across a wider range of lenders. That matters on a first bolt-on, because lenders differ on how they treat the existing business and the target.
Talk to us before you sign heads of terms, the outline agreement with the seller. That is when the structure is easiest to change.
This guide is general information, not financial advice. Applications are subject to status, affordability and lender criteria.
Got a question the guide didn’t answer? Talk to an advisor.
We’ve helped buyers fund deals from £25k to £10m across 100+ lenders. If you’ve read the guide and you’ve got a business in your sights, our advisors are on the phone now.