Asset purchases are a common deal structure in acquisition financing and bring value to the buyer in several ways. Unlike a stock purchase, where the buyer gets the entirety of the Company’s assets and liabilities, an asset purchase is a more targeted, almost surgical approach to acquisition financing.
Acquisition financing lenders rely heavily on cash flow stability in their underwriting approach. Providers of acquisition financing capital assume that historical performance is reflective of future levels of cash flow.
The distressed company buyer tends to be overconfident as to their plan and underprepared as to their acquisition financing. There are many hidden costs within a distressed company that need capital which adds to the purchase price.
Understanding the cost of acquisition financing leads to misguided comparisons and ill-informed views. Deal world participants are so focused on the nominal cost of interest; they end up comparing apples to oranges.
Niche industries are everywhere and present a conundrum for acquisition financing providers. Each lender has their own set deal criteria that governs the types of acquisition financing deals they can do.