Invaluable Acquisition Financing

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.

In some cases, acquisition financing can be transformational for the buyer depending on a few unique factors that unlock tremendous capacity in the acquisition financing structure.  For example, if the buyer has sufficient equity value their business, they can often use the acquisition financing to provide 100% of the funding needed to close a deal. This does not apply to people buying businesses for the first time but only to founders who have started a business and built up their equity value to a considerable degree. Founders usually are so focused on day-to-day management that they often assume that any acquisition would require a sizable amount of equity investment on their part. As long as the equity value can be substantiated and the post-closing debt multiple is in line with the market, 100% acquisition financing is available.

Additionally, if a founder wishes to acquire multiple business as part of their growth strategy, many acquisition lenders will accommodate this. If a founder wishes to expand their geographical footprint through acquisition, a lender can provide initial funding as well as follow on funding for subsequent acquisitions through a delayed draw term, accordion loan structure. The embedded equity value of the business as well as attractively priced acquisitions enables the lender to not only fund 100% of the capital need at close but also 100% of the add on acquisition funding. Acquisition financing lenders who provide these structures are invaluable capital partners to their borrowers. Their direct lending, cash flow-based structures allow founders to leverage their equity to develop more scale, size and value.