Acquisition financing is a credit facility that you can use to buy an asset or acquire another organization. The financing entails various sources of capital that are needed to finance a merger or acquisition.
Although there are many lenders offering acquisition financing, not all of them offer cost-effective terms. However, at ABG International Inc, you will get acquisition financing at competitive rates.
Acquisition Finance Structures
Acquisition funds are rarely obtained from one source. If you intend to acquire another company, you must determine the right mix of financing with the lowest cost of capital.
Here are the acquisition finance structures.
- Cash acquisition
In cash acquisition, shares are usually exchanged for cash. The Cash transaction is applicable when the company being acquired has a lower cash reserve than the acquirer.
Equity financing is used when you want to acquire a company that operates in a challenging environment with unsteady cash flows.
- Stock swap transaction
Stock swaps are usually common with private companies where the acquirer exchange its stock with the target firm. Before you do the swap, it is vital to evaluate the stocks of your partner to determine whether it is worth the exchange.
- Acquisition through debt
Debt is considered to be inexpensive and the most convenient ways of financing an acquisition. Note that before lenders finance a purchase, they will always assess the target company’s expected cash flow, profitability, and liability.
- Acquisition through mezzanine
Mezzanine is a hybrid form of financing that incorporates both equity and debt features. A mezzanine loan is offered when the target company has a stable business performance.
Acquisition finance is the use of equity, debt or a combination of financing techniques to acquire a firm. Before you select an option for your funding, it is vital to evaluate whether it has an optimal financing solution for a firm.
There are various options for acquisition financing. Before you settle for any of them, it is crucial to familiarize yourself with them. However, if you don’t understand the structures, please contact ABG International Inc.