Determining the Right Price

In any acquisition, there will be a negotiation over price. It is crucial to consult with an experienced individual or company so that your evaluation of the target is an accurate one.

Being armed with a thorough, insightful valuation will prove valuable when finding an agreed upon price.

Structuring the Best Deal through Use of Back ended Payments

Big acquisitions can be daunting when the selling price has to be paid all at once. Make sure to use strategies, such as a seller’s note, to push back payments, easing the immediate strain on your wallet so your company can have some flexibility.

Determining the Growth Strategy

Before an acquisition, there must be a plan. Identify the key opportunities that the acquisition provides. Perhaps the target company can expand into markets where your acquiring company has experience and established connections.

Perhaps you can offer new products to the existing customers of the company being acquired. The growth strategy could look like anything, so long as the logic, strategies, and steps are thought-out in advance.

Finding the funding

Knowing who to talk to and where to look are key for this step. Cash-flow based loans are your best bet for this type of endeavor. Banks usually prefer to give loans for maintaining ongoing operations—it’s less risky.

Plus, cash flow based loans offer more flexible repayment terms and, in most cases, a bigger loan amount.

Ensuring that You Have Financing After the Deal is Done

A common mistake that acquiring companies will make is seeking just enough financing to make the acquisition. Your capital needs extend beyond just the target company’s price tag; you have to fund growth even after closing the deal.

Be cognizant of this when assessing the loan amount required.

Be Wary of Too Much Debt

Most companies do not want to dilute control of their business and therefore are hesitant to raise capital by selling equity. Plus, paying interest on debt is tax deductible to an extent, which makes taking on debt more appealing to companies when they need capital.

However, over-leveraged companies with high amounts of debt on their balance sheet will run into trouble when trying to invest in growth. Be sure to consult an expert so that your debt is structured optimally, giving your company one less thing to worry about.

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.

Important Steps in a Leveraged Buy Out