How Unitranche Acquisition Financing Accelerates Middle Market Deals

Middle market deals require velocity, as the longer the acquisition financing process stretches out, the less likely the closing. Each closing is arduous and requires significant investment of time of both the company and outside advisors. Raising acquisition financing from different sources in a one-off transaction strategy can be done but it results in a disjointed debt structure for the buyer. Part asset-based loan, part cash flow-based loan across different operating companies within Holdco, is the usual result. Each lender has a different structuring approach , wants different things and are rarely on the same page. Managing different lender constituents is a full-time job for someone and takes a lot of time away from focusing on more important tasks. The negotiation of an intercreditor agreement with multiple lenders alone is a major challenge and its negotiating complexity portends how disruptive things can be if the deal goes south. There is a better solution than piecemealing the debt structure along these lines through using a cash flow-based unitranche facility.

Why a Unitranche Acquisition Financing Structure Creates Long-Term Flexibility

This type of acquisition financing provides flexible funding at the initial close, whether an acquisition or refinancing, as well as future capital at a later date. The future capital is structured in a delayed draw term loan committed for 2 to 3 years that can be drawn in smaller amounts usually to fund acquisitions or business investment. These lenders usually provide a large, delayed draw term loan, equal or larger than the amount funded at close. These acquisition financing lenders are comfortable lending at this level due to their familiarity with the acquisition strategy and industry of the platform company. Most private credit funds see how private equity funds generate huge returns through roll-ups and seek-out elite platforms to lend to. When you are getting all your financing from one lender who is committed at a large loan amount over a 5-year period, you have the power of a financial partner behind you and can move fast. You do not have to recreate the wheel for each closing. You do not have to educate the lender on why your business or the deal is a creditworthy one. As long as the company has strong deals that fit its acquisition strategy and the core business is performing, the delayed draw term loan can be borrowed, making the process streamlined thereby expediting the closing timeline.