Cornerstones Of the Acquisition Financing Process

Posted on: October 11th, 2022

acquisition-financing

Raising acquisition financing often feels like a Sisyphean task. It requires sustained energy to power the process as well as a resilient spirit to overcome unexpected adversity. The entire acquisition financing journey is a massive undertaking requiring a high level of information disclosure, business plan articulation, financial projection and relationship building.

Acquisition Financing for Middle Market Companies

Middle market companies that succeed in raising acquisition financing have higher level awareness of project planning, execution and resource requirements. The key to mastering the acquisition financing process lies in creating a navigational guide that maps out all major steps and their attendant sub-processes. This framework forces the company to think about the entire sequence of events that have to occur in order for the acquisition financing to close. It also enlightens the path towards the company controlling the process and frontloading key steps to ensure process timeliness. Two important steps in the navigational sequence are a having a high-quality business plan and a quality of earnings review of the target company.

The business plan is the primary vehicle that drives lender interest in the company. It is an important document that highlights the origins, specialization, growth strategy and financial performance of the company. Investing in a high-quality business plan yields big dividends and allows the company to make a powerful impression and control the narrative with the lender. Through educating the lender on the key metrics and nuances of your business, they assume a high level of business intelligence and proactive management.

The quality of earnings review is produced by an independent accounting firm according to a standard scope of work customized for the specific deal. All lenders require a quality of earnings report, so having it prepared up front saves time and signals a high degree of closing commitment. The business plan and the quality of earnings review are cornerstones of the acquisition financing process. They not only help you run a more efficient process, but they build your credibility in the lending market and communicate a higher level of transactional sophistication.

In the acquisition financing arena, capital availability is destiny as companies require reliable access to capital to grow over the long term. Unforeseen capital needs usually arise when acquirers least expect it. This can cause some concern for the acquisition financing provider, especially when covenants tighten up and that working capital availability is utilized faster than expected.

Mezzanine debt borrowing is usually a straightforward activity that many companies use for funding of transitional growth. Mezzanine debt lenders are highly transparent about their due diligence approach and their post-closing loan management making it easy for companies to engage with.

Elections have consequences and positive ones at that for the acquisition financing middle market. While much media attention is paid to the direction of the yield curve and the Fed’s likely rate cuts, scant attention is paid to the more important drivers of the acquisition financing market – business psychology and regulatory climate.