Almost without exception, external financing is needed to complete an acquisition. Financing can be obtained, for example, from investors, banks or financial institutions. Often the most profitable option for a financing solution is a combination of different financial instruments.
Whether the buyer is another SME, an entrepreneur or an MBO group, the amount of the buyer’s equity is a factor limiting the size of the transaction. The stake can be increased by involving an investor or a group of investors. Equity financing also includes capital loans and convertible bonds recorded on the loans side in the balance sheet. These are very useful when available. Thus, investors and subordinated borrowers share the risk, but also the future returns. The buyer should carefully weigh their own risk-taking capacity. The trade-offs for lower risk are limited decision-making and cash flow.
Banks want for example, Finnvera, a pension company or another financier to join in the financing solutions. Typically, the biggest disagreements concern the risk shares and loan collaterals of different financiers. From the buyer’s point of view, the goal is to obtain financing with the company’s collateral. If this is not possible, any personal guarantees or collaterals should be clearly determined. The buyer should make sure so that the financing project is properly documented and that financing options are discussed with various financiers. The package must include the buyer’s key plans, adequate forecasts, possible group calculations and other information affecting the acquisition of financing. This speeds up the processing of the project with financiers and ensures that the right kind of financing solution is found.
A professional consultant has experience in many different projects and their financing solutions. The consultant is able to help in contacting investors and financiers, finding the most favorable financing solution for the company, and negotiating related financing and covenant agreements.
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