Cross-Border Acquisition Financing: How Global Buyers Source Capital

Cross Border acquisition financing activity has ramped up due to global realignment of supply chains. Grappling with tariffs, companies who export to the US are now investing in the US either through M&A or expansion.

Overlooked Rules in Acquisition Financing

Companies often overlook a few basic rules when it comes to sourcing cross-border acquisition financing. Middle market companies that do business globally often expect to be able to tap any number of capital markets for acquisition financing or expansion. This can happen but it depends on a few variables that are outside of the control of the borrower.

Raising Capital Where the Deal Happens

The rule of thumb for cross-border M&A is that it is most effective to raise acquisition financing in the region where the acquisition is located. Because acquisition financing is a risky form of lending, lenders must be active in the market where the acquisition is located. For example, if the acquirer is in the UK, and served by a UK lender, that lender will not automatically provide acquisition financing unless they have a lending operation in the US that makes these types of loans. It requires a separate credit decision which is helped by the pre-existing institutional relationship, but it is certainly not automatic. The acquisition will also change the credit complexion of the company in the eyes of the incumbent lender, making them potentially less likely to want to remain in the deal post-closing. If more of the revenue and growth is in the new market post-closing, then it makes sense to refinance the original UK lender and consolidate the capital structure with the new US lender.

Building Smarter Cross-Border Structures

Certain middle market credit funds straddle both the US and the US and even have a pan-European focus which makes them versatile lenders across the spectrum. The key in structuring intelligent cross-border acquisition financing is to consider where you are buying and what the resulting financial entity looks like from a regional perspective. Smart global buyers’ factor this into their planning process which gives them a leg up on executing their global footprint expansion.