How the Right Acquisition Finance Can Make or Break your Investment

Acquisition finance is a highly sought form of capital that can be either a blessing or a curse for a company. How it ends up has much to do with the mindset of the person seeking acquisition financing in the first place. If you view it transactionally as a functional commodity with little appreciation for its subtle differences, you often get burned. People with a commodity view of acquisition finance often overfocus on tangible and measurable elements of a term sheet – the pricing, the fees, the prepayment penalty. If you view acquisition finance more in a relationship manner, you see it less as a cost to reduce and more as an approach to maximize.

Relationship approach acquirers seek long term capital partnerships, where they can flexibly borrow more to support their future acquisition needs. The right acquisition finance provides a combination of benefits to the borrower including capital availability, flexibility and patience. Acquisition finance providers who lend more than others usually have had success with your industry and are able to gain comfort at higher levels of risk. Rather than restrict the leverage to 3 times EBITDA, they are able to push it to 3.5 or even 4.0 times due to their comfort level. Having more capital availability at the start of an acquisition journey is great way to mitigate performance and integration risk.

Acquisition finance providers who charge interest only or low levels of principal repayment in the early years give their borrowers extra financial flexibility during the critical integration phase. This makes it easier for them to confidently progress through any messy operational steps right after closing. Finally, the right acquisition finance provider is smarter than the average lender and is able to exercise temperance when things do not go according to plan. Rather than acting in knee-jerk fashion, they bring savvy judgment to challenging conversations. These benefits are not listed in the term sheet and hard to spot. But they make a huge difference that can make or break your deal.