Written by Steve Simpson, Consultant

In acknowledging that every transaction has its own unique characteristics, whether it’s executing an MBO, M&A programme or achieving a partial value realisation, the sourcing of the correct type and quantum of funding across the debt and equity markets is a critical element in the execution of the transaction.

Where to start?

I guess it’s stating the obvious, but business owners should never underestimate the value of receiving sound advice. Therefore, engaging with a Debt Advisor, who can provide valuable and objective advice in relation to the complex web of funding choices in the market, should add considerable value to any buy-side transaction where capital raising plays a key part.

The fundamentals

The fundamental elements of raising capital to support a corporate finance transaction are fully aligned to those relating to the preparation your business for the transaction for example;

  • timing of the transaction
  • quality of financial reporting
  • preparation for due diligence
  • making sure its tax affairs are up to date
  • prepping the management team

A funder will want to fully evaluate the risk dynamics of your business model and will want to understand the number and length of customer and supplier contracts, the revenue model, routes to market and the level of recurring revenue, reliance levels one customer or supplier, input costs and overhead base, the condition of your assets and evidence that your historical financial results are stable or better still, on a growth trajectory.

Being able to produce regular management accounts, either monthly or quarterly, with board commentary and comparisons to budget and prior year, are a great way to demonstrate that you fully understand the company’s financial dynamics.

Presenting the business

Making sure you can clearly articulate the strategy for the business and its historic and projected financial performance, against the context of the relevant sector dynamics and competitive landscape are key components when capital raising. Your debt advisor will help you to navigate this aspect of the deal, through assistance with the preparation of a professional Information Memorandum, or a Funding Proposal Document to support your interactions with prospective funders.

Choosing a funding partner

Your Debt Advisor should be able to provide a clear view of the optionality of funding solutions in relation to the type of transaction at hand, whether through Asset Based Lending, Cash Flow led structures or vendor led/third-party equity provision.
The good news is that there is a plethora of choice out there both through traditional high street funders and through the alternative lender market, which has blossomed in the UK over the past decade or so. The choice of private equity provision is equally, if not more expansive, providing significant diversity of choice.

As ever, the decision to mandate a funder will be based on a range of variables and it remains true in funding solutions that people buy people. We would always advocate choosing a funding partner, which fully buys into your business model and strategy and is able to deploy additional capital as the business grows over time.

Whilst cost of capital is also obviously a key consideration, we would argue that pricing should not be the primary driver in the funder selection process. The management of execution risk is paramount in the delivery of the finance and a debt advisor will be able to pro-actively manage both the funding and documentation processes as the transaction progresses.

Managing the process

This is a critical path in relation to ensuring a successful outcome on the transaction. The debt advisor, having identified potential funder and optionality of financing structure with you, will assist you in short-listing and mandating a funder(s) in a timely manner to ensure that the financing package is delivered in conjunction with the transaction timetable.

Closing the deal

Once the funding mandate has been awarded, the primary focus of the debt advisor is that of project managing the transaction through to a successful completion. In this regard they will lead discussions with the other advisors involved in the deal (e.g. Lead Advisors/Legal/Due Diligence) in order to ensure that both the credit and documentation processes are delivered timeously ahead of closing.

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