The Season for Acquisition Financing Renewal

Posted on: February 17th, 2025

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There is a decidedly pro-business mood in the air with the changing of the administration which bodes well for acquisition financing trends. The decision to engage in middle market acquisition financing is a big one for a business as it involves complexity, change management and resource commitment. The prior administration was too activist and not helpful to build business owner confidence across a variety of areas leading to acquisition financing conservatism. With the new administration, there is renewed confidence and animal spirits in the business community and the environment is ripe for a season of acquisition financing renewal.

Revival of Acquisition Financing

This dawn of this renewal is a function of underlying economic development coupled with a rising enthusiasm for growth amongst business owners. We see four key areas driving this revival of acquisition financing.

Strong growth despite high inflation – The US economy has continued to power through high prices despite increasing pressure on the consumer. Middle market companies have grown faster than the market over the past 3 years and are poised to continue to see high revenue growth due to pent-up domestic demand.
AI integration into labor-based businesses- Private equity firms are increasingly focused on AI-themed roll-ups of overly labor based businesses which are ripe for automation. Businesses such as third-party administrators, and HOA management companies are seeing strong efficiency gains from this playbook.
Surplus of Private Credit Providers – the alternative bank ecosystem of private debt platforms, asset managers and BDC’s have become a visible force in the direct lending market. Though some are unproven as direct lenders, they need to put out money due to portfolio asset allocation decisions. Small funds like SBIC’s will lose share as well banks who are too concerned about risk ratings.
Impending Yield Curve Reduction – Interest rates may not come down right away but with such an intense focus on eliminating wasteful government spending, long term Treasury rates will inevitably come down. When structural governmental department spending is achieved, rates will come down leading to lower rates, higher stock and business valuations.

Sourcing acquisition financing is a specialized undertaking that involves collaborative processes orchestrated by a transaction expert. Like an orchestral conductor, this expert elevates organizational awareness of the acquisition financing lender’s standards while helping managers articulate the highpoints of the Company’s strengths and strategy. Acquisition financing lenders only lend to companies with ensembles of talented managers.

Acquisition Financing need not be daunting for a first-time buyer despite the strange acronyms the financial jargon used by industry participants. Raising acquisition financing is like any large project where expertise, planning and process is critical. Deploying a practical blueprint to raise acquisition financing is a way to make the process more efficient and faster.