What Is Business Acquisition Financing?
Business acquisition financing are loans for companies for the specific purpose of acquiring another company or asset. It is a common way of financing a company acquisition. Platinum Global Bridging Finance work with alternative lenders, providing debt solutions for international mergers and acquisitions to UK and European companies who are unable to access the mainstream banking market for some or all of their capital requirements. We help companies looking to finance mergers and acquisitions by using a straight forward business acquisition loan.
Our lenders range from Non Bank Lenders, Investment Banks, Private Family Offices, Financial Institutions, Private Institutions, Asset Managers, Hedge Fund Lenders, Specialist Debt Lenders all the way through to High Net Worth Private Individuals. Our lenders can lend from short term bridging solutions for 6 months all the way through to longer term lending for up to 5 years. We help businesses in Austria, Belgium, Czech Republic, France, Germany, Ireland, Liechtenstein, Luxembourg, Monaco, Netherlands, Portugal, Switzerland, Spain, United Kingdom plus many more countries.
Our simplistic approach and lending strategy means our lenders are able to provide supportive and flexible capital, delivered by an experienced team of specialists much quicker than standard banks.
Our lenders can lend from £2m to £500m+ over 6 months to 5 years if needed for UK and European companies involved in strategic development and acquisition of a company or assets. Debt financing is either secured via property or other unencumbered assets or cashflow-based on an EBITDA multiple. Business acquisition financing, management buyout funding (MBO finance) or company recapitalisation is usually via senior debt finance with a first charge over property, financial assets and the business itself. The acquiring party or management buyout team will need to contribute financially to the deal.
So, what is acquisition financing?
Acquisition financing is the way in which a company funds a merger or a company acquisition.
How do companies finance acquisitions?
They do it through various types of capital. In fact, larger companies and deals might leverage more than one method of financing using acquisition loans.
How does acquisition financing work?
Smaller companies can reap multiple benefits from acquiring other companies, such as business synergies and economies of scale. In order to acquire another company, the buy-side must review different business acquisition financing options. If you are acquiring a company businesses as part of expansion plans then its a good idea to shop around for acquisition funding.
Whether a simple refinance or transformational capital, the Finance team understands what you and your company are going through, and will partner with you through that journey:
- Growth Finance / Acquisitions
- Refinancings / Change of control
- Turnarounds / Special situations
Speed Of Execution
Quick decision-making process and ability to deploy capital fast
Our lenders invest in opportunities rather than specific sectors
Our lenders Finance team operates a flat structure, which means you are in contact with a key decision maker from day one. We strongly believe in the importance of relationships, so the same team will stay with you through the life of the loan
Our lenders can provide a complete solution for companies, but where required we can work closely with the mainstream banking and ABL community to provide a hybrid solution
Our Financing lenders offers bespoke and differentiated funding solutions:
£2m to £500m and can go higher upon business acquisition type.
- Asset focus with recognition for sustainable operational cash flow
- Leverage all asset classes including: Property, Plant & Machinery, Inventory, Receivables and Brand
- Flexibility to lend across the capital structure, including senior, second lien, unitranche and asset carve outs
- Offering a range of commitments from 6 month bridge loans to five year term loans
- Our lenders consider funding businesses in the UK and across Europe, in selected jurisdictions
Companies, like yours, typically complete acquisitions with the goal of growing and responding to your customers’ needs more quickly. Through acquisitions, you can also access adjacent markets as well as diversify your customer base.
There are various alternatives for financing an acquisition financing, depending on the acquiring company’s situation and goals, and the business acquisition finance structure can include a mix of funding sources. The most common alternatives for financing an acquisition include swapping stocks, cash, senior debt financing, mezzanine financing, leveraged buyouts, or equity.
We have experience working with companies of all sizes (EBITDA of £8 million to sky’s-the-limit) from a range of industries to implement a customised acquisition financing solution that meets the objectives of management teams.
Acquisition Finance Typical Uses
- Middle-market companies with attractive growth prospects and positive cash flow
- Incumbent management teams and active ownership with an economic stake in the company’s success
- Minimum EBITDA of £8 million
- Generalist sector approach
Typical Size For Acquisition Finance
- Senior debt: £3 million – £500 million
- Subordinated debt: £3 million – £500 million
Acquisition Finance Structural Characteristics
- Senior debt, alongside junior capital, for a seamless, one-stop solution with a single, relationship-oriented capital provider
- Typical maturities: 3 – 25+ years
- Flexible payment structures, including amortising or bullet, and fixed- or floating-rate
Issuer benefits of Acquisition Finance
- Capacity to fund across your capital structure; a one-stop shop with senior debt, mezzanine or subordinated debt, and preferred equity
- Supportive, patient, relationship-oriented partner
- Deep pockets to provide follow-on capital to fund your future growth
- Industry agnostic, with deep experience financing manufacturing, service, and distribution businesses
Let’s look at some of the popular acquisition financing structures that are available:
- Stock Swap Transaction
When companies own stock that is traded publicly, the acquirer can exchange its stock with the target company. Stock swaps are common for private companies, whereby the owner of the target company wants to retain a portion of the stake in the combined company since they will likely remain actively involved in the operation of the business. The acquiring company often relies on the proficiency of the owner of the target firm to operate effectively.
Careful stock valuation is important when considering a stock swap for private companies. There are various stock valuation methodologies used by proficient merchant bankers, such as Comparative Company Analysis, DCF Valuation Analysis, and Comparative Transaction Valuation Analysis.
- Acquisition through Equity
In acquisition finance, equity is the most expensive form of capital. Equity financing is often desirable by acquiring companies that target companies that operate in unstable industries and with unsteady free cash flows. Acquisition financing is also more flexible, due to the absence of commitment for periodic payments.
- Cash Acquisition
In an all-cash acquisition deal, shares are usually swapped for cash. The equity portion of the balance sheet of the parent company remains the same. Cash transactions during an acquisition often happen in situations where the company being acquired is smaller and with lower cash reserves than the acquirer.
- Acquisition through Debt
Debt financing is one of the favorite ways of financing acquisitions. Most companies either lack the capacity to pay out of cash or their balance sheets won’t allow it. Debt is also considered the most inexpensive method of financing an acquisition and comes in numerous forms. When providing funds for an acquisition, the bank usually analyzes the target company’s projected cash flow, profit margins, and liabilities. Analysis of the financial health of both the acquiring company and the target company is a prep course.
Asset-backed financing is a method of debt financing where banks can lend funds based on the collateral offered by the target company. Collateral may include fixed assets, receivables, intellectual property, and inventory. Debt financing also commonly offers tax advantages.
- Acquisition through Mezzanine or Quasi Debt
Mezzanine or quasi-debt is an integrated form of financing that includes both equity and debt features. It usually comes with an option of being converted to equity. Mezzanine financing is suitable for target companies with a strong balance sheet and steady profitability. Flexibility makes mezzanine financing appealing.
- Leveraged Buyout
A leveraged buyout is a unique mix of both equity and debt that is used to finance an acquisition. It is one of the most popular acquisition finance structures. In an LBO, the assets of both the acquiring company and target company are considered as secured collateral.
Companies that involve themselves in LBO transactions are usually mature, possess a strong asset base, generate consistent and strong operating cash flows, and have few capital requirements. The principal idea behind a leveraged buyout is to compel companies to yield steady free cash flows capable of financing the debt taken on to acquire them.
- Seller’s Financing / Vendor Take-Back Loan (VTB)
Seller’s financing is where the acquiring company’s source of acquisition financing is internal, within the deal, coming from the target company. Buyers usually resort to the seller’s financing method when obtaining capital from outside is difficult. The financing may be through delayed payments, seller note, earn-outs, etc.
Other Types Of Business Acquisition Reasons
Buy and Build
One business buys another with the aim of building a stronger combined operation, such as an enhanced market position or cost and revenue synergies.
We prefer buy-and-build deals when:
- your business is equal to or bigger than the business you want to acquire
- the potential for cost and revenue synergies is clear (cost synergies tend to be simpler to realise)
- the management team has experience in combining different businesses
The current management team raises funds to buy the business, which it then continues to run.
We like these deals because the management team has in-depth knowledge of the business and its industry.
Buy-in management buy-outs
Buy-in management buy-outs are similar to MBOs, but also involve management from outside the company joining the management team.
We will consider the experience and expertise of the new managers entering the business.
A new management team from outside the company raises funds to buy the business, which it will run. These deals are riskier, as the new management team will not know the business as well as the existing management team.
We expect that the new management team:
- invests significant funding of its own in the business
- has successfully completed such transactions in the past
- has expertise and experience in the industry
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