Posted on: December 24th, 2013

Acquisition Financing Capital Sure as the sun rises in the east and sets in the west, behind every acquisition is a willing provider of acquisition capital financing. Providers of acquisition capital financing come in a variety of shapes and colors and can be used on a solo basis or as part of an ensemble.

Acquisition Capital principles are important to observe as one goes about the important process of sourcing acquisition funding.

Some of more important principles to observe include:
1 Term Matching
2 Enough Capital
3 Flexible Capital
4 KYCP

Term matching means ensuring that the term of the financing matches the term of the project being undertaken. All acquisitions are long term projects that require long term acquisition capital financing structures.

Capital financing terms should be 4 to 5 years, not 1 to 2 years. Enough capital means to make sure that you have enough capital on hand to execute the merger and to fund your growth plan.

Often, business acquirers understate the need for acquisition capital and growth capital. While they may be able to close on an acquisition, they lack the cash to invest in a company to grow it.

Flexible capital is required to ensure that you can safely navigate your business through the inevitable rough seas ahead. All companies have a down quarter or a down year and need excess cash or flexible terms to pull through. KYCP means know your capital provider.

Raising acquisition capital financing is a lot like choosing a company to be a strategic partner. The relationship requires a lot of time, energy and management focus.

You want to due diligence the proposed provider of acquisition capital financing to verify that they have high character and have a history of doing the right thing.

When these things are properly addressed, a company is well equipped to find the perfect form of acquisition capital financing for their need – be it bank loans, mezzanine loans or equity investment.

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.

Acquisition Capital Financing