The Acquisition Financing Market Whisperers

Posted on: October 24th, 2024

acquisition-financing

In the acquisition financing world, there is a lot of publicly available information on different funds and structural approaches which allows a first deal neophyte to get up to speed quickly. After a deep dive online, most deal sponsors can gain a basic understanding of how to do an acquisition financing deal. What a perfunctory online search cannot do is crystallize and prioritize the most important aspects of your specific deal in the eyes of the market participants.

The Value of Market Whisperers in Acquisition Financing: Anticipating and Addressing Lender Concerns Early for a Smoother Close

Deal sponsors are well served by engaging with acquisition financing advisors who function as market whisperers and have their finger on the pulse of the market. The best acquisition financing advisors are able to ingest all the relevant facts on your deal including financial performance, industry, deal structure, growth story and integration plan, and provide a clear synthesized assessment as to how the market will view the deal. Acquisition financing market whisperers usually can put their finger on the one or two big issues the lenders will have. Based on their years of experience and understanding of the credit appetite of the market, they can tell you what the lenders will think about your deal upfront without even canvassing market feedback.

Their views are based upon a holistic view of fundamental and structural issues including – historical financial performance, deal valuation, industry cyclicality, revenue model risk, lack of sponsor equity support, lack of sponsor background or overall deal dynamics. This type of feedback is very valuable for the deal sponsor to know before they start the acquisition financing process. It allows them to adjust certain elements of the deal and to strengthen certain diligence areas in anticipation of market scrutiny. Incorporating their views into your process will pay big dividends and lead to a faster close.

As the Fed decides to ease interest rates, middle market acquisition financing structures will benefit in a number of ways. The underlying values of middle market companies will increase leading to a higher enterprise value and lower loan to value ratios for existing portfolio companies of acquisition financing lenders.

The role of acquisition financing is infrequently elevated above a functional transactional one. When a business needs financing to acquire, they go to the market and source acquisition financing to supplement their equity investment to close the deal. Despite existing in many different forms, acquisition financing is rarely explained in terms of the value it brings to the acquirer.

Acquisition financing underwriting usually focuses on business and financial issues that underpin the stability of cash flow. Providers of acquisition financing usually validate the durability of a company’s competitive advantage and the depth of its resource base. Environmental issues are usually not a major part of the analysis in today’s service and technology-based economy.