What is M&A Financing

M&A Financing describes various forms of capital that can be used independently or collaboratively, to effect a M&A transaction. Primary forms of M&A Financing include debt (loans) or equity (investor capital). Within each of these primary forms, there are a variety of different structures differentiated by term, pricing, position, and risk tolerance. The Goal of M&A financing is to fund an acquisition for a purchaser and to provide the capital within a structure that is sensitive to the operating cash flow reality of the company. An often-used form of M&A financing is mezzanine financing which is a long-term loan that is used as a replacement for equity or investor capital. These loans are highly flexible and customizable and allow an acquirer to defer the principal repayment of the loan until the back end, when the cash flow of the business has materially increased. M&A Financing can be in the form of publicly traded securities such as stocks, bonds and convertible securities. It most frequently takes the form of a bank loan, a mezzanine loan and private equity for middle market companies.  M&A financing is widely available from the private credit market. This market supplies 100% financing for companies with existing equity value in the form of an acquisition financing facility and a delayed draw term loan.  Many private credit lenders also provide structured equity which is used as M&A Financing.  M&A financing structure is important to ensure the company has balanced liquidity for the acquisition purchase price, working capital and growth capital. M&A Financing comes in the form of mezzanine debt loans, unitranche loans, structured equity and preferred stock.   M&A financing lending multiples depend on deal quality and company size but range from 3.5 times to 4.5 times adjusted EBITDA.   Acquirers that succeed usually overcapitalize their financing structure and have strong acquisition integration skills.