Raising acquisition financing can be bewildering for first timers. Acquisition financing providers are hard to identify in numbers sufficient to yield enough strong prospects. First time companies are not well versed in the presentation standards and process requirements. Like any complex process, it is a journey with different stages that requires the right combination of people, process and commitment.
To the uninitiated, mezzanine financing appears risky, and certainly riskier than a simple bank loan. Given its higher interest rate and larger loan amount, most founders tend to avoid it due to fear of overleveraging. If a company is not used to operating with debt, it does take some adjusting to as mezzanine lenders are more focused on current and future financial performance than most banks are.
Business owners are successful when they control their own fate. Most founders with 100% ownership struggle to fathom not having complete control. Acquisition financing complicates the matter of control, making it highly dependent on the type of acquisition financing structure being used. Equity firms will certainly provide acquisition financing, but they will take either minority or majority control.
While there is brisk demand for acquisition financing in the market, often users underappreciate its significance in powering growth. Acquisition financing lenders underwrite to the future cash flow growth of a business making an acquisition. They lend into an evolving and unpredictable period where change management and new processes are the norm.
The private debt industry has matured and expanded over the past 10 years, making it a huge force to be reckoned in 2025 in the acquisition financing market. It has become the go-to source for founder-owned companies and independent sponsors due to its attractiveness over banks. While many still go to banks to fund their deals, there are several underlying reasons why private credit fund platforms are intrinsically superior to banks in providing acquisition financing.