We can help you navigate M&A financing
Cerebro revolutionizes data-driven processes that help companies, entrepreneurs, and sponsors secure financing for M&A transactions.
There are a variety of lenders, both bank and non-bank, that provide acquisition financing for the purposes of buying a stand-alone business, roll up strategies, LBOs, and other acquisition activities. Typical acquisition financing terms include:
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lenders on the network
managed loan facilities
Avg. Lender Response Time*
*Accessing the market timeline is dependent on data room population.
What are the first steps to securing acquisition financing?
Identify an acquisition target
You can’t start the acquisition financing process without a specific target company to acquire. Financing can’t be obtained based on a generality of the type of target you are looking for, and instead, lenders will underwrite the loan based on the specific target company’s financial profile.
Reach preliminary terms with the seller (ie purchase price, selling financing, etc.)
Deal terms on both the buyer and seller side must be agreed upon before an acquisition can move ahead any further. It is here at the negotiating table where many deals are lost, as both buyer and seller navigate the best possible deal for both parties. It is best to go into the negotiation process with an understanding of what you are willing to negotiate on, and what could be a dealbreaker. Keep in mind that when dealing with an individual seller or family business, the sale can be an emotional decision. It’s better to not make a deal at all than to set yourself up for failure based on unreasonable deal terms.
Research financing options
Once a target acquisition has been identified, analyze how much cash equity you have at your disposal, and how big of a loan you might need based on the size of your acquisition target. Unless you have enough cash on-hand to pay for the acquisition outright, you will need to seek financing to complete the deal. On the flip side, rarely, if ever, will you be able to get financing on 100% of the acquisition cost.
Acquisition financing lenders come in all shapes and sizes, so getting a good understanding of the differences between lenders and the financing they provide is paramount.
Cerebro can help you determine the maximum loan size you can secure for a specific acquisition deal.
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*These rates are averages, calculated from current and past Cerebro Capital clients.
A Successful Acquisition Process Starts When:
Once you have evaluated and confirmed the above, you are ready to start evaluating your debt financing options for the desired acquisition.
Common Questions Regarding Acquisition Financing
If the seller is offering a note or equity roll, can I finance the remainder of the purchase price with debt.
Likely, no. Regardless of any deal between the buyer and seller directly, typically lenders will require 5-20% in cash equity from the buyer. This ensures the buyer has “skin in the game” and is fully committed to getting a deal done. Typically, seller notes do not count toward this cash payment. There are some exceptions to this rule but the more cash the buyer has to put down, the stronger the request will appear to lenders.
Are company prepared financials enough for lenders?
Lenders don’t trust company prepared financials as much as they do audited statements, and therefore, this typically won’t be enough information for you to receive financing. Lenders will first verify the information provided with tax returns. If the tax returns do not match the company prepared financials, a secondary source of verification may be needed in the form of a Quality of Earnings (QofE) report. For larger acquisitions above $5 million, a QofE report will likely be required regardless.
The seller wants to close within 30 days. How quickly can I get a loan?
Most multi-million-dollar loans take a minimum of 6 weeks to close and more likely between 2-4 months. This is, of course, dependent on the type of lender, size of the company, and loan size, among other things. If you attempt to rush into this process you could be red-flagged, and seen as trying to hide something from your lender. Don’t expect lenders to rush through their due diligence process. The only thing you can do to close a loan more quickly is to be fully prepared and immediately respond to your lender’s requests. Buyers should be wary of sellers that have unreasonable expectations on loan closing timelines.
How Cerebro Capital Makes Corporate Financing Simple:
Using our data-driven technology and tools, borrowers can access an estimate of available loan options, borrowing capacity, borrower strengths and weaknesses, personalized lender matches and secure data rooms – all in one place – so you can save time and make the best decision for your business, while working smarter, not harder, with support from our expert capital markets team.