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.
In the acquisition financing world, there is a lot of publicly available information on different funds and structural approaches which allows a first deal neophyte to get up to speed quickly. After a deep dive online, most deal sponsors can gain a basic understanding of how to do an acquisition financing deal.
Acquisition financing is often viewed as a wall street phenomenon that does not apply to most mid-sized companies. While big deals make the headlines, thousands of smaller middle market deals attest to the breadth and depth of the acquisition financing market. Acquisition financing is a tool for corporate scaling and should be a component of the growth tool kit for every growth-oriented organization regardless of its stage of development.