What is Deal Stress

Deals can take on unnecessary levels of stress as the timeline unfolds. As time marches on, stress can build, leading to deal fatigue. Usually this happens because there may be an expectational disconnect as to timing early on in the process. The Company wants the loan faster than the lender can deliver the loan.

In addition, there is usually some misalignment regarding information requests from the lenders. Lenders may request 50 items and yet the company may only be able to supply 50% of the requested items. Furthermore, company management has to keep running the business at the same time they are going through the diligence process. Things can get a bit strained over the relative importance of certain information.

How to Destress your Deal Process

Lenders may be too theoretical and request info that the management team believes is useless. Management dare not tell the lender that, and they usually begrudgingly acquiesce to obtaining some version of the info because they want the loan. All of this is quite normal and is generally flares up in every deal. Lenders may expect more than the company can provide.

Finally, the communication flow between the parties may not be optimal. This too will add to a feeling that the deal has more moving pieces and is not proceeding according to plan. For whatever the reason, the parties can find themselves in a position of disequilibrium which naturally causes stress to build. The issue is not if will this occur but when this will occur. It happens all the time and there are some quick way to distress the deal process before tension gets to an unmanageable level. Here are the Attract Capital top 4 ways to destress your deal process.

Check in with the lender regularly – Err on the side of calling them a few times a week during the diligence process just to check in. Don’t rely on email. If any frustration is building on their end, you will feel it and get them comfortable with the process.
Set Realistic deadlines for information delivery – Companies frequently underestimate the amount of time it takes to gather and organize quality information. Review the diligence request list thoroughly and make sure you are not overpromising and underdelivering. If you feel the timeline slipping, quickly reset a date you can hit.
Have informal ways of relating to the lender – This can be a lunch, a game or anything that allows you to have a personal connection with them. This will help you recognize if things are getting straining and allow you to rapidly respond to get rebuild their comfort level.
Be up front and transparent – Lender’s love honesty and will think more of you to the extent you level with them about what is going on. Guiding them with an update will reduce their concern and rebuild their faith.

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.