Acquisition Finance - M&A Debt Advisory

As part of the M&A strategy, in addition to the search for a suitable target company or buyer, there is always the question of how to finance the transaction. Depending on the industry, the business model and the risk assessment of the investors, the owners or the management, a range from pure equity financing to a maximum use of debt capital can be observed. Based on these considerations regarding the M&A and financing strategy, it is necessary to analyze the basic financing options. This depends on the creditworthiness, the cash flow and thus the debt service capacity of the acquiring company, the company to be acquired and, for example, a special purpose entity to acquire the target company. Depending on the amount of the leveraged portion of the purchase price, alternative lenders such as mezzanine or debt funds may be considered in addition to traditional banks. In general, the degree of complexity and the time aspect of acquisition financing should not be underestimated. However, the effort is worthwhile if the optimal financing structure in terms of risk or return is found at the end and a deal that initially seemed impossible to finance could be financed after all.

Sample financing structures for M&A transactions:

Buy-side financing expands strategic options in M&A transactions

Every company faces the challenge of optimally deploying its available equity. Particularly in the case of a capital-intensive decision such as the acquisition of another company, the question arises as to how much equity can or should be used and where the optimum proportion of debt capital (leverage) and thus the optimum risk-reward ratio of a transaction lies. In this context, it is particularly important to note that the acquisition structure and the financing structure go hand in hand and should be coordinated from the outset. For example, in the case of a majority shareholding and the associated consolidation, financing opportunities arise based on the creditworthiness of the company to be acquired. 

Our approach to financing buy-side activities

From our point of view, it is particularly important that the aspect of financing is included in the M&A activities from the very beginning to be able to optimally define the search criteria. Accordingly, we accompany the buy-side financing throughout the entire process:

  • Working out the optimal financing structure (equity, debt, mezzanine, vendor loan, etc.)
  • Comparison of whether the planned acquisition structure and the financing structure go hand in hand
  • Preparation of documents for approaching banks/debt funds
  • Accompanying the negotiations with banks/debt funds
  • Ideally, agreement of a so-called hunting line with banks/debt funds to be able to implement the acquisition strategy in a flexible and responsive manner

Our overriding goal in all these activities is to increase the likelihood of transactions being implemented for our clients and, optimally, to generate advantages in negotiations with sellers through an advantage in the speed of implementation.

Sell-side financing optimizes the sales process and expands the buyer spectrum

Basically, we're just switching to the other side of the negotiating table compared to buy-side financing. Wouldn't it be ideal for a company buyer not to have to worry about financing the purchase price because the seller brings a financing proposal from his bank to the negotiating table? This financing approach of so-called stapled finance is quite widespread in the M&A financing market - in contrast, in our experience, it is less familiar to sellers of companies.

Our approach to sell-side financing

To be able to involve potential financing partners in good time, the topic of sell-side financing should be addressed as early as possible in the divestment process. The M&A specialists of WTS Advisory have an extensive and resilient network of banks and debt funds at their disposal to find a suitable partner for the topic of stapled finance.

Specifically, we can support our clients in the area of sell-side financing as follows:

  • Ongoing update of financing conditions with our network partners in the area of banks and debt funds are the basis for our services in the area of sell-side financing
  • Client- and project-related preparation of documents & support in discussions with banks and debt funds
  • Negotiation of client- and project-related, individual conditions with the goal of a term sheet with the key points of financing
  • Attachment of the term sheet or the financing proposal to the investment memorandum ("Stapled Finance")

The declared goal of our activities in the area of sell-side financing is to maximize the sales price for our clients and to increase the probability and speed of implementation.

If you are interested and have any questions, please do not hesitate to contact us.

 Dr. Heiko Frank Partner
 Armin Schöpke Senior Manager