Debt financing is one of the favorite ways of financing acquisitions. Most companies either lack the ability 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 supplying funds for an acquisition, the lenders 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.
Asset-backed financing is a method of debt financing where lenders 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.
Mezzanine or quasi-debt is an integrated form of financing that includes both equity and debt features. It usually comes with a possibility of converted to equity. Mezzanine financing is suitable for target companies with a strong balance sheet and steady profitability. Flexibility makes mezzanine financing appealing.
A leveraged buyout is a unique mix of both equity and debt that 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 provide collateral.
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.
When building an M&A strategy it’s important to have a clearly laid out set of assumptions about the transaction and the sources of cash (financing) that will be used to fund the purchase of a business or an asset.
Our team collaborates with mamagment teams and entrepreneurs in planning, sourcing, structuring, and arranging the optimum solution for an acquisition prior to entering into the letter of intent with your target company.
Finally, we keep an extensive network of lenders, advisors and investors who we actively stay in touch with on a regular basis due to their heightened interests in attractive Canadian-based private market opportunities. In the end, every stone is unturned when supporting your project.
We are a national full-service financial and business advisory firm. Our team members have decades of corporate finance and operating experience across variety of industries originating, sourcing, structuring, closing; mergers, acquisitions, debt, equity, securitizations, capital raising, joint-venture, alliance and supplier transactions for some of the best-known public and privately held Canadian companies.