Funding your acquisition ambitions: the options available

In an ideal world small- and medium-sized businesses would be able to fund acquisitions internally. In the real world they need someone else to provide the readies.

Happily, “there is a lot of liquidity in the market pent up from last year”, says Robert Adams, managing director of Focus Capital.

On the debt front, as well as the pillar banks the Government has been weaning SMEs off since the financial crisis, there are specialist providers too. These include companies such as DunPort Capital, a provider of flexible debt capital to businesses, including those looking to grow through acquisition.

Beechbrook Capital’s Ireland SME Fund provides debt capital to support acquisitions to companies with a turnover of €3 million to €25 million, and minimum Ebitda (earnings before interest, taxes, depreciation, and amortisation) of €1 million.

Crowd-based investment is on the rise too, growing into a viable option for those looking to amass a war chest for expansion.

‘Smart money’

Recent successes are Spark Crowdfunding – which handles equity investments, not peer-to-peer lending. Akkure Genomics, a medtech platform, recently broke its record by securing €1.2 million, for 11 per cent of equity, in just over a week. The business’s promoter had gone in looking for half that.

Some people prefer the “smart money” an angel investor brings. HBAN, the Halo Business Angel Network, estimates there is now €125 billion sitting in people’s bank accounts, earning negative interest rates, which could be backing Irish businesses. About €30 billion of this was amassed in the past year, as a result of coronavirus restrictions.

HBAN’s business angels invested more than €14 million in 2020, mainly in start-ups, but the growth of its specialist angel syndicates, whose deeper domain expertise – and pockets – has seen angels increasingly “follow the money” on into a business’s growth stage too.

There are a number of growth funds active here too, including Development Capital and MML Growth Capital Partners, which provides growth capital for acquisitions and will contribute between €5 million and €15 million.

While most funds operate on timelines of three to five years, some such as BGF operate a “patient capital” model. The Government’s Ireland Strategic Investment Fund, AIB, Bank of Ireland and Ulster Bank are all investors in BGF, whose €250 million SME-focused fund provides equity investments of between €1 million and €10 million.

The biggest change in the business landscape has been the proliferation of private equity providers such as Cardinal Capital, Kish Capital and Renatus.

“Private equity is very active at the moment and is actively out there seeking good companies to back,” says Adams.

Funds

Among the most active are those from the United States. “There is an estimated $1.4 trillion in dry powder in US equity funds right now,” explains Adams’s colleague Alan Kelly.

“There are billions of euro of unspent private equity money out there that can’t get a return elsewhere. A lot of the private equity houses are sitting on this, with a lot of Irish funds raised too. Cardinal, MML and BDO have all raised new money and are keen to put it to use, with debt funds and alternative lenders operating too,” says Jan Fitzell, partner, mergers and acquisitions at Deloitte.

“We are also seeing people who have sold their own business and who have the money, and the interest, to invest. We are even seeing historically wealthy family offices taking shares in private companies now too.”

Despite the uncertain environment, businesses are taking advantage of the availability of capital to “double down on opportunities”, says Anya Cummins, lead partner at Deloitte Private Ireland.

Some have spotted new growth opportunities, others want to take out competitors and others still are being encouraged by the private equity companies that have invested in them and who see acquisitions as a way to “superscale the growth of the business”, she says.