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.
First impressions are lasting impressions in life as in the acquisition financing arena. Regardless of how the aspiring buyer sees themselves, the acquisition financing lender is keenly observant of how they present and conduct themselves. While acquisition financing does use mathematical approaches for loan structuring and underwriting, it relies largely on the lender’s view of the borrower’s maturity, professionalism, judgement, and mindset for ultimate loan comfort.
Entrepreneurial success often results from taking a non-obvious path and repurposing resources to transform a business. Funding provided by banks and investors as opposed to mezzanine debt lenders is traditionally used to fund this growth journey. Mezzanine debt can also be repurposed as equity to transform the capital plan.