Flexible Acquisition Financing Strategies: How to Close Deals Faster

All acquirers have a need for speed. Usually, this is driven by the importance of the acquisition financing strategy itself. It can be consolidation, diversification or scale-up, all of which involve reforming the company to become stronger in the industry.

Often the speed of acquisition financing lender’s process does not match with the speed of the acquirer for a number of reasons. The acquisition financing lender may need time to get up to speed on the industry. They may also be swamped internally with other closings or portfolio issues. Most of the time, the lender’s multi-stepped process requires deep analysis and investment committee sign off to proceed, so that they arrive at a balanced investment decision. Scoring of different investment opportunities and deciding as to capital allocation are processes best made free of time pressure.

As hard as the acquirer may push the provider of acquisition financing, their process can only move so fast. Rather than wear out your welcome and spoil your relationship, it is best to focus on ways you can accelerate your side of the process, to make it easier for the lender to gain speed. These flexible acquisition strategies are simple processes that you control and can frontload, thereby creating a greater level of lender engagement and actionability.

An acquirer should ensure they have a strong growth oriented Confidential Information Memorandum. This is like having a highly professional resume and creates a favorable first impression. This makes it easier for the lender to disseminate information about your company internally and controls the narrative. In some cases, the acquisition financing lender may even cut and paste your narrative onto their report and run with it.

An acquirer should have strong historical financials in the form of a quality of earnings report on both their business and the acquisition target. This saves the acquisition financing lender at least two to 3 weeks of time.

In a roll-up, the acquirer should have a signed letter of intent or a draft of the stock purchase agreement ready before lender contact. Acquirers often slow walk the finalization of the LOI until after getting a lender term sheet. However, this adds risk to the deal and makes you look like a rookie in the eyes of the lender.

Building Credibility Through Preparation

Roll-up acquirers should have a pipeline of actionable deals, when they first approach the lender. When you have multiple deals ready to go, the acquisition financing lender sees you as highly credible and willing to move faster. Also, having more than one deal ensures you can close at least one deal. It will also be harder to justify raising an acquisition facility if you only have one deal on your plate.

Finally, the company should have a full organization chart with all management positions filled and a detailed integration process ready to go. The biggest lender risk is integration challenges. A full management team and a strong integration approach help to build comfort you have a sophisticated, well managed platform, worthy of acquisition financing backing.