From Term Sheets to Closing: Navigating the Acquisition Financing Maze

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.

Targeting the Right Acquisition Financing Lenders

Producing term sheets begins with intelligent targeting of the right type of acquisition financing lenders. Acquisition financing providers look at specific types of deals based on transaction size, industry, and type of deal. You must know these parameters when developing a contact list to ensure you are building a universe of the right type of lenders. Because the hit rate is so low, (usually less than 5%), the universe of targeted lenders must be at least 30 to 40 lenders to ensure closing.

Crafting a Compelling Growth Story

Companies need to have a strong CIM and historical and projected financial statements. You need a great growth story to hook the acquisition financing lender and generate enthusiasm for the deal. Lenders see hundreds if not thousands of deals per year. They are in the talent scouting business and need to see something special in your company and growth strategy to want to invest time in it. Too often, companies describe themselves in pedestrian or basic ways that sells them short in terms of specialization. You need to examine your business model and convey it in a way that may be a bit theoretical but nonetheless aligns perfectly with how the lender thinks about business.

Preparing Financials and Managing Due Diligence

You need to ensure that your financial statements are in good shape and reflect standard allowances for pro forma adjustment. Clean numbers and strong transaction support are the ticket to get through due diligence.  Often issues arise from out of the blue that need resolution to finalize diligence.

The Role of Advisors in Closing the Deal

A strong investment banker who has their pulse on the financial, industry, operational and background diligence is essential. Closing requires not just a good lawyer but the continued involvement of the senior management and the investment banker. This is especially true with middle market deals where the investment banker knows a lot about the business and fills in gaps within the senior management structure.