The Growth Confidence Boost of Acquisition Financing

Posted on: August 9th, 2024

the-growth-confidence-boost-of-acquisition-financing

Most middle market companies exist far removed from the high finance world of acquisition financing. They usually fund their own growth through cash flow and bank lines and have little reason to enter the acquisition financing market. When transformational growth becomes a priority, companies enter the market where they are faced with many different lenders asking a wide spectrum of strategic, operational, and financial questions. These purveyors of acquisition financing are smart and experienced business people having reviewed thousands of deals and booked hundreds of loans. They can analyze and distill the important fundamentals of any business and pinpoint the strengths that give it staying power and market influence.

While the intensity of their approach may be a bit disarming, they ultimately are trying to validate your business model as a sound and differentiated one that lends itself to scaling up. This scale-up validation is a very important step to undergo with a third party who is looking at the business objectively and dispassionately.

Loan by Acquisition Financing Lender

When a company is approved for a loan by an acquisition financing lender, it not only increases capital availability but also provides growth confidence to the business. Growth confident companies can build value at a level that most other companies in their industry cannot. They can implement an M&A program to build market share. They can also use M&A to complement their innovation initiatives by purchasing tuck-in product lines. They can pursue bigger, transformative deals knowing that capital availability is not a barrier to their growth. Confidence is a scarce resource in the business building community. Those that have it are able to dream big and execute better leading to significant value growth.

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.