What is Acquisition Finance? | Meaning & Definition

Acquisition Finance is the use of debt, equity and hybrid financing techniques to achieve an acquisition. The focus of acquisition finance is on identifying the optimal financing solution for a company. This occurs when the cost and flexibility of the financing structure is linked to the company’s cash-flow based value and growth potential.

Acquisition Finance Structures

Optimal acquisition finance structures are adapted to the client situation and may call for nonstandard corporate finance techniques and funding sources.

The acquisition financing world is populated by lenders who usually have a financial-first focus when analyzing a deal. They look at historical EBITDA trends, gross margin levels and revenue growth rates when conducting a first pass on a deal. In their formative years in the acquisition financing industry, they are usually several levels removed from the operational activity of a company.

Ambitious roll-up acquirers rightly focus on acquisition financing availability in order drive their speed of their acquisition growth strategy. At early stages, they set an acquisition pace tantamount to multiple deals representing a large quantity of acquired revenue in a year. Acquisition financing is the fuel that funds their scale-up, as the prices paid usually far exceed their ability to fund internally.

Mezzanine debt lenders provide large capital infusions to businesses at a historically important point in their development such as an acquisition, new market launch, or buy-out. Intelligent use of a mezzanine debt structure can provide a large capital boost at a lower cost than raising equity from investors. Mezzanine debt use is particularly impactful as a one-stop source of capital, providing a company valuable growth capital that is a hybrid of a loan and equity.

Acquisition Finance

Acquisition Finance Structures

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