After reading Erica's excellent post on Working Capital [redacted] I gave some more thought to the working capital needs of my own deal. I'm interested in others' thoughts on financing vs. using cash to fill a WC gap in a deal.
I'm under LOI to acquire a demolition and environmental remediation business. The accepted offer is an EV of $3.35M (3.1x EBITDA) plus $700K Working Capital.
My QoE provider's recommendation is $1.25M WC, which isredactedmonths' worth. In this scenario with high WC needs, is it better to get a lender to finance additional WC as part of the loan (if the business supports it), or to use your own cash (if you have it?).
The advice I've received is to get as much WC as possible, more than I think I'll need. I'm comfortable with $1.25M but not sure the best way to get there.
Thanks in advance for your thoughts.
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by a searcher
from University of Miami
in Indianapolis, IN, USA
in Indianapolis, IN, USA
1yr ago
Working Capital: Finance with loan or bring as cash?
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by a professional
1yr ago
from New York University in Brooklyn, NY, USA
from New York University in Brooklyn, NY, USA
In my experience, if you're able to access additional capital from the loan, even if you do not need it, I would do this and keep your own cash for unexpected circumstances of needing cash that you can't foresee. It is easier to access additional capital when you do not need it than when you actually do need it and are under time pressure. Hope this helps.
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by a searcher
1yr ago
from ESSEC Business School in Melbourne VIC, Australia
from ESSEC Business School in Melbourne VIC, Australia
There's a bunch of great posts above and my 'two cents worth' would also be to finance WC prior to close, if the business can handle it. Then your personal cash is there for back-up, and, in my view, it's always going to be easier to finance in one block, prior to close.
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