Why Most Acquisition Finance Strategies are Outdated – and How to Fix Yours

As the private credit industry expands, it brings acquisition finance innovation and efficiency to companies that have been overlooked in the past. Historically, middle market companies took a one-off approach to acquisition finance. Rather than focus on funding an ongoing strategy, they were more focused on raising acquisition finance for just one deal. They would talk to their local bank or their local SBA lender about acquisition finance but usually would not get very far.

With the middle market now served on a direct basis by all types of private credit lenders, acquisition finance has moved beyond local banks and SBA lenders. These new lenders offer new ways to fund not just one acquisition finance deal but a series of acquisitions as part of an ongoing strategy through offering accordion structures of delayed draw term loans. This provides middle market companies with valuable acquisition finance options typically used by private equity companies engaged in roll-ups.

Scalable acquisition finance structures such as delayed draw term loans give a company continuous funding power over the course of the acquisition journey. Rather than swap out acquisition finance lenders every time you outgrow your current lender, you can stay with one lender and save time, transaction cost and management focus. The key in fixing your acquisition finance strategy is presenting the right growth story to the right provider of acquisition finance.

When an acquisition growth story resonates with a lender, it is because it is easily understandable and relatable. It plays off an investment theme that this lender has been very successful with in the past. Unfortunately, many middle market companies lack the ability to tell their story in a way that will resonate with a lender. Acquisition finance requires a higher quotient of company awareness and strategic articulation. With greater emphasis on this skill, companies will capture more lender interest and higher-octane loan structures.