Acquisition Financing Bedrock Recommendations

Posted on: September 18th, 2020

Acquisition Financing Bedrock Recommendations Acquiring companies is a complex, challenging and often risky activity. While the business news media makes it sound as easy as pie, it involves careful decisioning and deft operational maneuvering. Buying a company requires strong thinking and leading on the part of the buyer. They need to know exactly what they are getting themselves into as it relates to the operational challenges of the business and any industry weaknesses. When acquiring, most buyers assume that things will only get better and do not adequately address the factors that could get worse People may not like the new owner. They may miss the level of independence or relationship they had with the prior senior management. They may not like the new strategy or fill as if their institutional knowledge was not considered in establishing it. There are endless reasons why companies can slip into a performance stupor post-closing, and many buyers never see it coming. Given this variability, it’s important for a buyer to have stability with respect to their acquisition financing partner. As things crop up on the operational side, your acquisition financing lender functions as a bedrock of stability to weather the inevitable volatility on the operational side. The right bedrock selection can go a long way to helping the acquirer achieve success with the acquisition.

Acquisition Financing for Stability in a Volatile Market

Finding your acquisition financing bedrock is not an easy task as its hard to locate these types of lenders in the first place, let alone rate them on multiple criteria. We find that lender attitude and post-closing behavior speak volumes as to their ability to reliably function as acquisition financing bedrock.

Here are the Attract Capital recommendations for sourcing your acquisition financing bedrock.

Choose Relationship Lenders – relationship-oriented groups make for strong acquisition financing bedrock as they are oriented to the long term and to partnering with management. When a lender only looks through a transactional lens, this can lead to problems and a less flexible arrangement.
Choose Firms based on the quality of their people – Middle market business people like to do business with kindred spirits. Just because a fund manages $1 billion does not make them a big company. Usually acquisition financing lenders have far less employees than the companies they lend to. Get to know the people and their views at each firm, and choose the ones with the highest character and reputation.
Choose Firms that are seasoned – the best measure of an acquisition financing lender is how they reacted to a failing deal. Did they pull the plug, did they put more money in, did they back or replace existing management? All of these questions are relevant in understanding how battle tested and seasoned they are.
Choose Firms that Show Enthusiasm for your Growth Vision – If your acquisition financing lender strongly buys into your vision, they are more apt to support you over the long term, regardless of short-term performance blips.

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.