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.
Acquisition Finance is a form of capital used to support mergers and acquisition transactions. While acquisition finance can include all forms of capital including loans, equity and hybrid structures such as structured equity and mezzanine debt, it traditionally refers to the corporate lending or finance use to acquire a company. Acquisition finance can include different types of loan structures, as long as the use of the loan proceeds are used to finance an acquisition. Selecting the correct form of acquisition finance to fund your deal depends upon the purchase price, the asset base and the cash flow of the target acquisition.
In some cases, senior asset-based loans can be used as acquisition finance. In other cases, junior cash-flow based loans must be used due to the dearth of assets. Most frequently, because acquisitions trade at high prices relative to earnings, a combination of senior loans and junior loans are used in a customized package.
With over $1.8 billion of acquisition finance deals under our belt, we can turn your acquisition finance search into a closed deal.
- Turbo-charged lender reach – we get your deal out to 40 serious acquisition finance lenders very quickly.
- Structuring expertise – we structure the deal to give you the most acquisition finance at the lowest price.
- Transactional support – we muscle your deal through each step of the process to get it closed.
Acquisition Finance: Tailored Debt Solutions for M&A Success Through Strategic and Financial Assessment
Acquisition finance is provided by lenders well versed in assessing the risks of mergers and acquisition transactions. These lenders are skilled at assessing buyer acquisition fit and integration risk, two critical success factors for both the lender and the buyer. To qualify for acquisition finance, buyers must demonstrate financial support for the acquisition in the form of cash equity or rollover equity. They must also demonstrate an innate understanding of the innerworkings and growth levers of the to-be-acquired company. Acquisition finance is most frequently raised from non-bank, debt funds due to their ability to lend to companies that fall outside of traditional bank credit metrics. The process of raising acquisition finance is very involved and has multiple steps, including a strategic assessment of the combined companies as well as a financial analysis of the historical performance.
FAQ’s
Acquisition finance describes a specialty finance discipline focused on acquisitions.
It is different than general finance due to the inherently riskier nature of corporate acquisition versus other lower risk forms of growth. Acquisition finance can be achieved through a variety of different approaches including bank loans, cash flow loans, and various forms of equity.
Any type of acquirer should consider using acquisition finance. It is not solely available to private equity groups but is open to all type of business buyers including companies and independent sponsors. Due to the vastly different costs and attributes of different types of acquisition finance, companies should use an expert who can pinpoint the best type of acquisition finance to use in a given acquisition.
There are a variety of finance options depending on the type of company and the price being paid. If the company meets certain size standards and is considered a middle market deal, it will have vastly more options available. Acquisition finance options include senior debt, mezzanine debt, unitranche debt, structured equity and preferred equity.
Lenders want to understand the rationale for the acquisition and the fundamentals of the business. Buyers need to show a strong, common-sense reason for making the acquisition. Buyers must clearly explain the inner workings of the business, and also their ideas for future growth. Lenders look for financial performance, buyer fit, business strength and industry outlook when making their acquisition finance decision to lend.
Acquisition finance advisors are valuable due to their vast industry connections and knowledge of the process. They are able to help a company understand the best acquisition finance structure. They also take the lead and make sure the Company is ready for the diligence process. They provide significant transactional support that keeps the deal on track and on time.