First Impressions and Acquisition Financing

First impressions are lasting impressions in life as in the acquisition financing arena. Regardless of how the aspiring buyer sees themselves, the acquisition financing lender is keenly observant of how they present and conduct themselves. While acquisition financing does use mathematical approaches for loan structuring and underwriting, it relies largely on the lender’s view of the borrower’s maturity, professionalism, judgement, and mindset for ultimate loan comfort. These things are subjective yet figure prominently with the acquisition financing lender.

First impressions are used as a screening mechanism for the lender to decide which deal to invest their time in. Because acquisition financing depends on cash flow growth for repayment, lenders focus on these variables to gain comfort with management’s judgement. While not every first impression is correct, lenders use both the soft and hard information from an initial meeting to develop a feel or sense of the team. This feeling is used to infuse their view of the desirability of the deal. If the first impression is very positive, the acquisition financing lender is likely to rate more highly than it is. If the first impression is negative, the lender is likely to rate the deal less favorably than it is. Most lenders are smart and experienced enough to understand that some borrowers for a variety of reasons may not come across that well in their first meeting.

Sometimes virtual meetings fail to convey the energy level and charisma of the team adequately. Sometimes the lender is preoccupied and less interested which leads the borrower to underwhelm. Other times, the borrower tries too hard which causes the lender to retreat a bit. These communication asymmetries can ultimately be overcome through presentation quality control, repeated practice, and advisor expertise. Given the dearth of quality middle market companies in the market, the best lenders take a holistic as opposed to a mere first impression view of borrower. This has led to first impressions being a steppingstone as opposed to a sinkhole for all worthy borrowers.