Senior debt
First-ranking security, the cheapest block, and the most restrictive terms: amortisation, financial covenants, information undertakings.
- ›Term loan A with amortisation
- ›Separate working capital line
- ›Quarterly test dates
Corporate Finance
Acquisition finance
How an acquisition is funded decides whether it still looks like a good idea three years later.
In practice it is nearly always a mix: a senior bank tranche, often a unitranche from a debt fund, plus mezzanine, a vendor loan and own funds. Which combination fits follows from the target's cash flow, not from the purchase price.
We always run the structure against a depressed case — margin down two or three points, revenue ten per cent below plan. If debt service still works, the structure holds. If it doesn't, no amount of negotiating skill on the coupon will save it.
One point that tends to come too late: sellers judge offers on funding certainty too. A solid financing confirmation, a clean equity proof and a process without committee conditions regularly beat a higher but shaky bid.
Typical situations
- Strategic add-on or buy-and-build
- Management buy-out or buy-in
- Acquisition of shareholder stakes
- Refinancing of an existing acquisition structure
Key facts
- Volume
- from €5m
- Senior leverage
- Cash-flow dependent
- Total leverage
- Structure-dependent
- Term
- As agreed
- Equity
- Transaction-dependent
- Timeline
- 6–12 weeks
Building blocks
The tranches and what they are good for
Unitranche
One tranche, one lender, bullet repayment. More expensive than senior, but it removes the intercreditor negotiation and is decided far faster. On a tight acquisition timetable that is often worth more than the interest saving.
- ›One counterparty instead of a syndicate
- ›Bullet structure eases cash flow
- ›Decision within weeks
Vendor loan and earn-out
Both bridge differing price expectations. A vendor loan behaves like economic equity and improves the senior ratios; an earn-out shifts part of the price into the future — and needs a measurement basis nobody will argue about later.
- ›Subordination and standstill
- ›Earn-out on EBITDA or revenue
- ›Settle the disputes in advance
Mezzanine as a gap filler
Where senior capacity falls short of the purchase price, mezzanine closes the gap — subordinated, expensive, sometimes with a PIK element. Sensible when the return on the acquisition clearly exceeds the cost. Not sensible to fund an inflated valuation.
- ›Subordinated, bullet
- ›PIK preserves liquidity
- ›Only where returns carry it
Process
How we put the financing together
- Step 01
Debt capacity
Analysis of the target: adjusted EBITDA, working capital, capex. That determines what the cash flow can carry.
- Step 02
Structure
Split across senior, unitranche, mezzanine, vendor loan and equity — including the downside case.
- Step 03
Lender approach
Banks and debt funds approached in parallel with one information package, so offers stay comparable.
- Step 04
Term sheets
Compared on all-in cost, covenants, security and flexibility for future add-ons — not just on margin.
- Step 05
Documentation
Loan agreement, security package and, with several tranches, the intercreditor agreement. Most delays originate here.
- Step 06
Closing
Aligning financing and SPA completion, drawdown and setting up ongoing reporting.
From practice
Two mistakes that get expensive
Maximum leverage as the objective
Load the structure to the limit and the first weak year leaves no reserve. We negotiate covenant headroom and, where possible, an equity cure, to reduce the risk of a single quarter triggering a breach and a renegotiation.
Integration left unfunded
IT migration, severance, duplicated structures during transition: those costs land in year one but rarely appear in the model. We provide a dedicated line rather than squeezing them out of operating cash flow.
Questions
Common questions on acquisition finance
Financing for your acquisition
Send us the target's key figures — we calculate the debt capacity and set out a structure that holds.