The US Financing Markets offer myriad ways to get business acquisition financing in many different forms. Business acquisition financing is different than business working capital financing. With the later, banks and finance companies can lend against a company’s assets to provide liquidity on a short term basis. With business acquisition, companies are well advised to respect the classic concepts of risk and term in their decision making. Acquisitions are risky propositions and can provide many challenges for the acquiring company. Acquisitions are also long term type projects and usually take 3 to 5 years to achieve realization of the initial strategic goal. Given the risk of acquisition and the long term nature of acquisition realization, companies need to consider acquisition loans that are structured in a way to mitigate risk.
If the acquisition financing loan is too short term, it may disrupt the acquisition integration process and force diversion of cash to the bank. If the acquisition financing loan requires rapid repayment of the loan, this also makes it harder for the company to have enough cash to fully invest in the newly acquired company. Finally, if the provider of acquisition financing only sees the asset value and not the future strategic value of the acquisition, he will be less likely to hang in there for the long haul of the investment. The best way to get acquisition financing is to bring on an acquisition financing advisor who can help you develop a conservative loan structure and manage the financing procurement process.
The best form of acquisition financing for middle market companies is mezzanine debt, second lien debt and untranche debt. These providers of acquisition financing provide low cost, long term loan structures that mature in 5 to 7 years. The mezzanine market is well stocked with dry powder now and is seeking good companies in need of capital. Be sure you work with an advisor who is well connected in the mezzanine community who has platform like efficiency in finding the right lender for your deal.