Posted on: December 24th, 2013
Sure as the sun rises in the east and sets in the west, behind every acquisition is a willing provider of acquisition capital financing. Providers of acquisition capital financing come in a variety of shapes and colors and can be used on a solo basis or as part of an ensemble. Acquisition Capital principles are important to observe as one goes about the important process of sourcing acquisition funding.
Some of more important principles to observe include:
1 Term Matching
2 Enough Capital
3 Flexible Capital
Term matching means ensuring that the term of the financing matches the term of the project being undertaken. All acquisitions are long term projects that require long term acquisition capital financing structures. Capital financing terms should be 4 to 5 years, not 1 to 2 years. Enough capital means to make sure that you have enough capital on hand to execute the merger and to fund your growth plan. Often, business acquirers understate the need for acquisition capital and growth capital. While they may be able to close on an acquisition, they lack the cash to invest in a company to grow it. Flexible capital is required to ensure that you can safely navigate your business through the inevitable rough seas ahead. All companies have a down quarter or a down year and need excess cash or flexible terms to pull through. KYCP means know your capital provider.
Raising acquisition capital financing is a lot like choosing a company to be a strategic partner. The relationship requires a lot of time, energy and management focus. You want to due diligence the proposed provider of acquisition capital financing to verify that they have high character and have a history of doing the right thing. When these things are properly addressed, a company is well equipped to find the perfect form of acquisition capital financing for their need – be it bank loans, mezzanine loans or equity investment.