Suboptimal Processes of Acquisition Financing Lenders

Acquisition financing lenders often praise their recent deal closings to show their investment power. The act of closing a deal should be celebrated due to the difficult work involved for all parties, especially the borrower. Often acquisition financing lenders overlook their deal processes which make the financing process more difficult.

The irony of the due diligence process is that most acquisition financing lenders would think twice about lending to a company that had their level of process inefficiency. There are two main areas of inefficiency that borrowers should be mindful of before committing to an acquisition financing lender. They are information gathering disorganization and diligence process subcontracting. On the information side, many acquisition financing lenders use a siloed approach to information gathering where the legal, financial, and business diligence teams are uncoordinated and often ask for overlapping diligence items. This results in the borrower functioning as the information air traffic controller to the financing process.

In addition, acquisition financing lenders often subcontract all their diligence work to third party providers, as opposed to doing it themselves creating the need for the borrower to manage many specialized diligence streams. The acquisition financing lender functions nowadays as more of a project manager and customer to the ultimate diligence providers. This gives them more domain expertise but can also lead to a shallower understanding of the actual diligence findings. A fully subcontracted diligence approach requires more borrower resource bandwidth to manage and can stretch out the timeline. The distancing of the lender from the diligence process can work for the borrower or against the borrower, but it adds another layer of complexity. The most important lesson for the borrowers is to maintain a firm grip on the diligence process.   Your team needs to be on top of the process regardless of whatever information requests or diligence issues arise.