How to Finance Your M&A Deal (debt and equity)
The mid-market acquisitions landscape has become increasingly competitive from a lenders point of view. This is especially true for acquisitions over $50M.
Private equity companies, family offices and strategic buyers all typically look to make their acquisitions primarily on debt. The senior debt piece may come from a big bank or other traditional lender. However, the mezzanine piece almost always comes from a firm that has a higher risk tolerance, such as a private money lender. With mid-market list you can find a database of acquistion companies, private equity firms, family offices and more. We provide this list for free so that companies can find the right companies to do business with.
If you or your company are qualified buyers and looking for acquisition capital, fill out the form below with as much information as you can on your company and target company. We’ll use that information to match you with the firms that excel in that type of lending.
For those interested in getting an acquisition financed, start by filling out this form and telling us a bit about your company and the business that you are looking to acquire.
How Acquisition Loans Work
Acquisition loans typically look at both the credit and historical performance of the purchasing company, as well as the assets, historical performance and industry of the company that is being acquired.
There are often times two or more loans made for acquisitions. The senior loan will typically be for less than 60% of the companies value, but will have a longer duration and more favorable interest rates than the mezzanine loan.
The Mezzanine loan will be from 20-50% of the target companies value and will have a higher interest rate and shorter duration attached to it than the senior loan does.
Both of these lenders will likely require that the acquiring company put in upwards of 10% of the purchase price.
Alternative Acquisition Terms
Because there are so many moving pieces with an acquisition loan, it is only cost effective for lenders to make the loans to qualified sponsors on transactions over $50M. This of course leaves the lower end of the mid-market with fewer options to finance their deals.
Many lower mid-market acquirers have to make cash deals for the businesses that they acquire. Alternatively, they may be able to finance the acquisition by securing asset based loans and accounts receivables loans secured with the purchased companies assets.
Other Commercial Loans Used for Acquisitions
If you are a veteran to mergers and acquisitions, you likely know that there is no end to the creative deal structures that take place in the mid-market. Everything from utilizing asset based lending companies, to seller financing, to inventory collateral loans, to seller holdbacks and accounts receivable financing lenders. Whatever asset the target company has (or acquiring company has), there is a way to leverage it to help finance a business purchase.