CFO Guide to Acquisition Financing: Structuring Capital for Scalable Growth

Acquisition Financing can create a fortune for enterprising founder-owned companies. It does not happen by accident though and it takes focus on how to integrate it with the growth vision. Acquisition financing represents a new pathway for growth that most companies. Founder-owned companies usually avoid it because they think private equity will inevitably be involved in their deal. Thinking about integrating acquisition financing into a strategic growth usually falls on the shoulders of the CFO. Most CFOs are a bit reticent to take this step because it is outside of their skill set. CFO’s are usually not incentivized to promote large scalable growth. But the ones that take the time to learn the best way to structure capital to promote scalable growth, become financial legends in their industry. Capital structuring is best learned from a buyside investment banker who focuses on debt capital. When a CFO learns how acquisition financing lenders think, this structuring knowledge becomes a growth weapon.

Here are the key precepts of the CFO Guide to Acquisition Financing:

1. It is all about adjusted EBITDA. Lenders do not care much about your balance sheet but focus singularly trailing twelve-month EBITDA and any one-time adjustments.
2. The loan size is determined by a multiple – usually 3 to 4 times adjusted EBITDA of the combined company. The acquiring company has a latent debt capacity that it can tap to fund the deal.
3. The deal has to be large enough >$15 million, to attract an institutional acquisition financing lender. If the deal is too small, the interest narrows.
4. Lenders need a strong strategic growth story to get excited about the deal. Generic growth stories do not sell. Specific, innovative growth stories sell.
5. Growth financing and acquisition financing go hand in hand. Your strategy can be to invest in your existing business simultaneously by acquiring another company.
6. Acquisition financiers are different than bankers and take more risk and get paid more for their capital.
7. Don’t focus on how expensive their money is. It is all about what you can do with their money. If their capital can fund historic growth and a large increase in value, it has paid for itself.
8. Acquisition financing lenders are not one and done type lenders. They want to fund your growth over the course of years through their flexible loan programs.