How Acquisition Funding Can Increase Your Profit?

How Acquisition Funding Can Increase Your Profit?

August 20, 2021 Admin
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Acquisition Funding at the very root is a popular funding mechanism during merger and acquisition transactions that can accelerate the revenue and profitability of small businesses. It comprises many different sources of capital that helps in the effective funding of an acquisition transaction and is viewed as an effective method for increasing the size and volume of the company's operations through acquisition.


What is Acquisition Funding?

The capital which is raised for buying another business is called Acquisition Funding or Acquisition Financing. This funding technique could take the form of debt ie., borrowing money for repayment and equity which enables a company to raise money by selling its shares. Acquisition Financing can also be a mix of both debt and equity finance.

Acquisition finance encompasses a wide range of financing structures where a company or the special purpose vehicle (SPV) formed for the acquisition transaction, purchases a few or all the assets or shares of another company. 


Process of Acquisition Funding

The process of funding an acquisition requires meticulous planning to be able to rightly achieve a company’s aspirations. The process of Acquisition finance involves a few or more complex transactions such as exchanging stock, debt acquisition, cash transactions, Initial Public Offerings, issuance of bonds, and disbursement of loans, etc. Acquisition funding can also be planned to take place in stages wherever there is any need for funds and also accordingly the adjustment to the debt and equity ratio can be made. This process of acquisition funding is known as structured deal. Another popular method of acquisition funding is stock swap. In this process, instead of cash, the acquisition transaction takes place through exchange of equity based asset. Such means of finance result in an effortless, lucrative, and quick turnaround.

For the purpose of acquiring an existing organization, a Special Purpose Acquisition Company (SPAC) is formed to raise capital through an Initial Public Offering (IPO). SPAC has no involvement whatsoever in any commercial operations and are hence also known as ‘Blank Check Companies’. Forming SPAC has been found to be very useful in attracting big investors and underwriters

How Acquisition Funding Can Increase Your Profit?

Types of Acquisition Funding

  • Acquisition Funding is important for a buyer seeking to take over a company and an owner wanting to sell his business. Buyers usually look for a cost-effective mode for creating a capital structure. Thankfully, Acquisition Funding provides various financing solutions for meeting most of these needs. Let's look at some of the most popular acquisition financing methods:
  • Bank Finance – It is the most affordable form of acquisition financing. It is easier to avail a bank loan for the acquisition of a company if the cash flow is steady, growing, or at least stable EBITDA, valuable assets or substantial profits are available as collateral security. A bank is inclined to approve financing in such cases as they consider these elements as essential cash metrics which will eventually enable the acquirer to clear off their debt obligations 
  • Equity Investments– This is another type of acquisition funding that provides capital through investments. This kind of acquisition financing allows investors to become business partners. This investment is most suited for companies operating with tangible assets.
  • Seller Funding– This category of funding is profitable. It allows the seller to support the buyer by funding the acquisitions in the form of loans and by becoming investors in the business. Such a way of financing helps small businesses who don’t have access to funds but wants to retain some control over such a business.
  • Asset-based Financing– Under such financing, funds are availed against the assets that he possesses. Such assets involve inventory, fixed assets such as machinery and equipment, etc.
  • Debt Security– Under such financing, the corporate may use debt security like issuing bonds, to finance the acquisitions. When such acquisition is made, it can often be found that the companies are selling these bonds in the open market, thus gaining certain advantages. Under such debt financing, collateral may include assets, receivables, property, and inventory.
  • Mezzanine Debt – It is also termed as a subordinated debt. Mezzanine debt allows buyers to keep major control of the business. Such kind of debt is highly recommended for businesses having strong cash flow and growth. One unique feature of it is that it has flexible terms and requirements and can be customized to suit the fund needs, to fit each transaction structure. Such funding can be extremely beneficial for buyers when bank finance is not feasible and raising equity is an expensive affair.
  • Stock swap transactions– There are circumstances when a company intends to exchange its stock with the target company. Such transaction is common in private companies, whereby the owner of the target company would want to retain a portion of the company. Therefore, this allows them to remain actively involved in the operation of the business.

Acquisition Financing Advantages

Acquisition Financing as we now know includes a bouquet of finance solutions. The complex transaction of an acquisition hugely benefits from the nature of these finances that enables sourcing the requisite funds in need. Taking the Acquisition funding route is a quicker solution resulting in smooth and timely execution of the acquisition process. An acquisition is needed to be completed within a given time frame or else the very purpose is lost. If the acquisition process is delayed, it gives an edge to the competitors to enter the market and grab the opportunity. Therefore, Acquisition Financing proves beneficial as it results in speedy acquisition. It is also a useful financing solution for phased acquisition. The assurance of getting credit gives hope to the seller that he will receive the requisite payment and thus he does not hesitate to go for a staggered acquisition. This in turn enables the acquirer to keep the cost of interest to the minimum and follow an optimized process of acquisition.


Acquisition Funding Firm in Gurgaon

Leading business hub Gurgaon is also a destination for various leading acquisition funding agencies. Resurgent India Limited, which has a Pan India presence also has offices at Gurgaon, Delhi, and several other big business centers and commercial hubs across the country. A SEBI registered growing investment and merchant bank, Resurgent India also ventures into acquisition funding and has funded various acquisition projects successfully. For a successful acquisition, it’s important to pick the right kind of finance. The eclectic mix of foresight and market knowledge of our finance experts ensures that you pick a wise solution aimed to meet your financial goals.

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