An established Bay of Plenty tavern was set to change hands, with the purchase agreed and a fixed settlement date already in place.
The company formed to complete the purchase was new, so it had no trading history of its own. The assessment therefore needed to look beyond the borrower on paper and focus on the business being acquired, the buyer’s contribution and whether the proposed funding structure was sustainable.
The tavern had produced a strong result in FY24, followed by a softer FY25. It remained profitable, but the reduction in revenue and earnings meant the latest year could not simply be treated as business as usual.
The agreed purchase price was $450,000. The purchaser had verified funds to contribute and was seeking finance for the remaining $257,948.72. There was no additional borrowing or vendor finance sitting behind the transaction, which kept the structure relatively clear.
There was also a practical deadline. The funding needed to be documented and ready for settlement, with the loan proceeds paid directly to the vendor’s solicitor’s trust account.
A newly incorporated company rarely tells the full story of an acquisition. In this case, the more useful questions were how the tavern had performed over time, whether the purchaser had meaningful funds committed and how comfortably the business could meet the proposed repayments.
The weaker FY25 result was allowed for rather than dismissed. Even at the lower level of earnings, the tavern remained profitable and the projected debt commitments were well covered. The purchaser’s verified contribution also meant they had their own capital invested in the outcome.
The security package brought the remaining pieces together: personal and cross-guarantees, a GSA over the purchasing entity and a caveat over a director’s residential property. Taken as a whole, the business performance, purchaser contribution, repayment capacity and available security supported the acquisition facility.
The latest year was weaker. Revenue reduced from $2.21 million in FY24 to $1.84 million in FY25, while EBITDA moved from $390,000 to approximately $245,000. Gross profit margin nevertheless held at 33% across both years.
For the funding decision, the key measure was the tavern’s ability to carry the new debt. Projected DSCR after the facility was included was 2.5x, comfortably above the 1.20x policy threshold.
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