Moving Acquisition Financing Forward

Posted on: May 9th, 2024


While many acquirers view acquisition financing through a functional lens, others look beyond mere terms to assess the wider picture of the lender. In a basic sense, acquisition financing is capital provided by a lender used to finance an acquisition. As with all loans, it has a host of terms and conditions which are functional and can be objectively analyzed. But beyond these terms lies the most important aspect of the acquisition financing- whether or not the institution can move the deal forward and whether in the end they are a good lender partner for the company.

Beyond the Terms: Evaluating Acquisition Financing Lenders

Often, terms can look great on the surface, but the institution is not in a good spot or is not a good fit for the deal. Identifying this at the front end of the deal process is critical to moving acquisition financing to the finish line. What makes this challenging to do is the fact that so many lenders are very skilled at marketing the best version of their operational processes, as opposed to the reality of their process. Many acquisition financing lenders use a “we have a lot of experience with this industry” line when they see a deal they like. While that may be true, all companies have uniqueness and are at different stages of platform development leading to completely different risk profiles for the lender. Rather than invest the time on the front end to understand where the company truly is, they punt on this process   and end up wasting everyone’s time in a process that could have been avoided.

Acquisition financing operational processes are also susceptible to a whole host of variables that can negatively impact the movement of diligence. The lender may not have the resources to move quickly, or they may be distracted internally with fundraising or portfolio issues. They may have the wrong talent working on the deal typically using young person in lieu of a more seasoned person. They may also not go deep enough in their questioning and understanding of the business, which leaves them vulnerable to not being able to get their investment committee onboard with an approval. The best lender partners are those who have copious amounts of acquisition financing experience and a high number of deal outcomes to show for it. The firms that take the time to really learn the company on the front end and build a relationship with management make the most reliable lender partners over the long term.