How Long to Close Acquisition Financing?

Deals are intricate projects with many variables, that are subject to unforeseen delays. All acquisition financings start out with the best of timing intentions with a call to close in 30 to 45 days. Often, these deal timelines stretch out as the initial processes give way to the secondary processes. The cause of the delay is usually something that can be foreseen on the front end if the process was analyzed with transparency.

What is Acquisition Financing?

Most new participants to a deal closing overlook the simple truth that an acquisition financing is two separate deals – a purchase and a financing integrated into one large project. The purchase is transacted between the buyer and seller whereas the acquisition financing is transacted between the lender and the buyer. Each process is independent yet flow in a sequential manner. While both work streams can be parallel processed, certain milestones in the purchase need to be attained so that the financing process can move ahead. The rate of speed for each process is usually different.

Executing a purchase agreement involves two decision makers, the buyer and seller. It can be performed quickly, often in 30 days or less once the buyer has established interest. Executing the acquisition financing involves more touchpoints and takes longer. The buyer must source a lender and educate them on the deal. Once the buyer lands a lender, due diligence commences which involves confirming the financial results through a quality of earnings report. Sourcing the lender is a large project unto itself and can take 30 days on its own. This process entails running a number of lenders a through a structured, sales funnel process to produce a viable number of prospects.

Once the buyer selects the lender, it can take an additional 2 to 4 weeks to get through diligence. The speed of the acquisition financing is accelerated to the extent the buyer has performed due diligence that the lender can rely upon. Often, the diligence process is the area that bogs down due to reporting limitations of the to be acquired company. If the deal is approached properly with strong guidance from a financing advisor, the buyer can pass through both the purchase and acquisition financing phase more rapidly. In most cases, the buyer can close within 45 to 60 days. The key to closing faster lies in honestly assessing the people and systems involved in both processes and remediating any gaps up front. It is possible to close in 30 days, if the buyer is extremely well-organized, and the company has pre-configured its diligence deliverables.