Investors in every M&A deal have financing needs. The purchase price must be secured through adequate sources of funding, unless a merger or share exchange is chosen.

Transaction financing

The purchase price of the target company is refinanced by

  • equity capital
  • borrowed capital.

The borrowed capital element is based on future free cash-flow of the target company.

Financing factors

Financing of the purchase price is dependent upon a wide range of factors, such as:

  • the sector of the target company
  • the risk profile of the target company
  • profit forecasts for the target company
  • growth prospects for the target company
  • synergies with the buyer company
  • available equity capital of the buyer company
  • lender terms
  • tax implications.

Financing conditions

Transaction loans

  • are normally unsecured
  • normally repayable within 4 – 6 years
    • Basis: 3.5 – 4.5 times free cash flow
    • extension of repayment period possible where collateral is provided
  • may consist in
    • subordinated loans
    • mezzanine loans.

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