The Value of Acquisition Financing Credibility

Posted on: October 13th, 2020

The Value of Acquisition Financing CredibilityAcquisition financing usually plays a utilitarian role in an acquisition. Most buyers see it as a functional part of putting together a deal and do not see strategic value beyond the dollars and cents. But what if acquisition financing access itself creates value for a buyer in a different, yet palpable way.

When buyers project acquisition financing confidence and expertise, it drastically improves their credibility in the eyes of the seller. This gives them a valuable commodity known as acquisition financing credibility, which can be monetized in several ways. While most deals are subject to capital raising contingencies, acquisition financing ready buyers benefit in ways that most people in middle market finance do not realize.

Particularly in todays capital constrained environment, buyers with financing credibility have higher certainty of close and can get better deals at better prices. When you are a financing savvy buyer, people want to do business with you, and they assume you can close, even if you must raise the financing. With the growth in the variety of buyers including search funds and non-sponsored buyers, acquisition financing credibility can be a huge differentiator.

Benefits of Acquisition Financing Credibility

Here are the Attract Capital key benefits to acquisition financing credibility:

  1. It is easier to build a relationship with the seller – sellers want to deal with real buyers with money and do not want to waste time on speculative buyer. When you demonstrate acquisition financing credibility, you can mitigate this risk with the seller and gain their comfort.
  2. Leads to more opportunistic buys – acquisitions move fast and those with access to capital can get better deals. When you have acquisition capital behind you, you get a sell side broker’s attention and they prioritize your interest.
  3. Brings value to Roll-ups – Roll-ups need a high level of capital and constant communication with multiple acquisition targets. Getting acquisition targets to sign the LOI only happens if they believe you are funded.
  4. Leads to improved Deal Structures – when you have acquisition financing expertise on the front end, you can drive value into the deal and ensure it is set up for ease of closing. Whether it is the amount of debt, intercreditor issues or need for follow on capital, acquisition financing credibility streamlines these issues into a scalable debt facility.