Acquisition Finance in a Shifting Market – What Smart Investors are Doing Differently

May you acquisition finance in interesting times, said my recent fortune cookie. The current economy can certainly be termed interesting, as it shifts from one theme to another. These shifting forces require different approaches to acquisition finance to ensure soundness, flexibility and opportunism. Smart investors in today’s market are more focused than ever on partnering with high quality providers of acquisition finance who possess a relationship focus.

With a fast-changing market, companies need to have a relationship-based lender to support their ever-evolving approach to growth. Lender support for management’s growth discretion is a key factor. The lender may have approved the loan under one set of growth assumptions but needs to allow the company to veer from this initial path, if the new direction is promising and compelling. Smart investors are keying in not just the price of the acquisition finance, but the culture and fit of the acquisition financing provider. If the senior people seem arrogant and know it all, this is usually a bad fit for a founder or independent sponsor.

Rethinking Acquisition Finance: Capital Flexibility and Strategic Lending in Volatile Markets

Lenders who speak like operators have a distinct advantage as they tend to better understand the vagaries of a shifting economy and corporate growth. Smart investors are also overcapitalizing their deals and adding money for growth investments and working capital into their acquisition financing loan amount. Unpredictable market shifts create sudden and large market opportunities that well-financed companies can pounce on.

Finally, smart investors are requiring that all acquisition financing lenders provide additional capital support in the form of a delayed draw facility to be used to fund additional acquisitions or organic growth. This delayed drawing structure is critical for two reasons. Firstly, high quality relationship lenders self-select to this approach. Secondly, it gives the company capital scaling power. Capital scaling power in a shifting market is worth significantly more to a growing company than the interest and other fees it pays the lender.