Funding an acquisition in Canada - reasonable expectations for LTV debt?

searcher profile

January 11, 2023

by a searcher from British Columbia Institute of Technology in Vancouver, BC, Canada


Hi everyone,

I finished a brief run through of SIG's Self Funded Search Study and it made me curious if the debt side of the transaction is comparable to a Canadian transaction. The study found 44% of respondents who acquired a company between $500k-$999k EBITDA (where I am searching) were able to leverage between 80-89% LTV

Most of that debt was covered by an SBA loan - I think about 10-20% total debt was through seller notes

Has anyone had experience with LTV percentages in that range - or close to that range - in Canada, and what bank/institution/product did you utilize to complete the transaction?

Thanks!
Chris

PS - Thanks to the guys at SIG and the Acquiring Minds podcast ^redacted‌^redacted‌ ^redacted‌redacted‌

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commentor profile
Reply by a searcher
in Toronto, ON, Canada
I have some experience with such deal sizes in Canada. While different businesses/type or industries may potentially have different LTV values, I personally found the Canadian Banks more conservative and LTV to be more in 60-70% range. Depends on business, your assets, guarantees, business assets and such. Also it mattered whether the application was through an advisor or directly. CDAP loan (0% loan) is for digital adoption in your existing businesses, not acquisition. But anyway the amount is limited.
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Reply by a searcher
from Carleton University in Toronto, ON, Canada
There's a few things to consider here: LTV will be generally around 70%, Debt to EBITDA will be capped at 3.5x - 4x, with a 1.25x debt service coverage (EBITDA/Principal + Interest Payment). The lower leniency on debt is offset by lower valuations of comparable businesses compared to the US. BDC is good for the sub-debt side of things, but they're expensive... with little to no prepayment/acceleration allowed, resulting in effective cost of debt being around 18-20% after it's all said and done.
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