Posted on: November 8th, 2022
An acquisition financing raise is a complex project where multiple disclosure processes cohere in support of an approval from a lender. Among the classes of information gathered by acquisition financing lenders are financial, customer, product, operational, legal and background. The level of information provided is massive and consists of third-party summary reports and detailed internal reports that contain highly disaggregated and granular data.
Most acquisition financing lenders take pride in the level of specificity of their information request lists. Once these information requests start getting filled by the company, many acquisition financing lenders regret asking for as much detail as they did originally. Ingestion of all this detail takes a while and often it is challenging to think through what the information is saying. Acquisition financing lenders tend to think directionally at a high level and are often unable to find valuable insights in highly detailed operational information. Acquisition financing lenders can sometimes hit a dead end in thinking through an area due to the ill-fitting conclusions they draw from their diligence process.
Even though they bought into the deal early on and subscribe to a compelling high level investment thesis, the underlying data is a mish-mosh and not directly supportive. The way to defuse this issue is to have a healthy program of lender engagement support as part of the deal process. This is usually provided by a senior acquisition financing advisor who builds a relationship with the lender and routinely checks on their progress. The check- up, while presented as a friendly touch base, is more of a quality check on the lender’s data ingestion and understanding processes. By providing continuous lender engagement support, you can easily redirect and defuse a lender who comes to the wrong conclusion or is not seeing the forest through the trees. If they are struggling on a basic point, you can help them think through it.
Rather than wait weeks into the process only to see they reached the wrong conclusion, it is far more effective to check in early and often on their process and help reconcile their understanding and educate them. Lender engagement support is critical to ensuring the lender reaches the proper understanding of the due diligence information. It is not something that can be done easily through an email but involves live interaction over the phone or in person. The ability to implement this depends on the level of trust built up between the lender and the company’s advisor. If the lender sees the advisor as a positive force in aiding their understanding in an educational light, then they embrace it. Ultimately, the lender needs a high level of education in a short period of time to come to an approval. Lender engagement support is the glue that binds this education process and ensures all big issues are reconciled and the lender is onboard with the loan.