Funding to buy a competitor, complete a management buy-out or buy-in, or buy a partner out. Lenders underwrite the business as it will look after completion, so the case has to show the combined position rather than two sets of accounts side by side.
Senior debt against the target’s cash flow and assets · often alongside vendor finance or deferred consideration
Typical situations
A business you already understand, with customers that overlap and overheads that will not need duplicating. Lenders will fund against the target’s cash flow, but what they are really testing is whether the combined business services the debt once the synergies people claim on a spreadsheet meet the ones that actually arrive. That is a modelling job, and it is where most acquisition cases are won or lost.
The team running the business buying it from the owner. Lenders like the continuity and look closely at what the departing owner actually did, and at what the vendor is prepared to leave in.
One shareholder leaving, the others staying. Funded against the company’s own cash flow and assets, and usually structured with part of the price deferred.
Heads of terms set out the price, the structure, the timetable and what is conditional on what. Lenders will not do serious work without them, because until the structure is agreed there is nothing definite to lend against. Getting heads signed before funding conversations start saves weeks and makes the borrower look like a buyer rather than an enquirer.
Almost no acquisition is fully debt funded. Lenders expect a meaningful contribution from the buyer, and they expect the vendor to have some exposure to what happens next, usually as deferred consideration or an earn-out. A vendor who insists on the whole price in cash on completion tells an underwriter something about their own confidence in the business, and the funding gets harder accordingly.
Senior debt is sized against sustainable earnings after the deal, not against the target’s best year. Asset-backed lines against the target’s balance sheet, invoice facilities against its ledger, and asset finance against its equipment can all sit alongside the senior facility, which frequently produces a better total than pushing one lender to stretch.
Indicative market ranges, not an offer of finance. Terms depend on the lender, the security and your circumstances.
What the lender assesses
What goes in the pack
Lenders will not commit against numbers nobody has tested. Running financial and legal due diligence alongside the funding conversation, rather than after it, keeps both on the same timetable.
All cash on completion narrows the lender list sharply. We raise it at heads of terms stage, where it is still a negotiation, rather than at credit stage, where it is an obstacle.
Forecasts built on synergies with no workings behind them get discounted to nothing by an underwriter. Each assumption is set out with its basis, so what survives scrutiny is known before submission.
Where the relationships sit with the person leaving, that is the first thing credit will identify. It is addressed directly in the pack through handover terms, consultancy arrangements or a longer earn-out.
It depends far more on the quality of the target’s earnings than on the headline price. A business with recurring revenue, low customer concentration and assets on the balance sheet supports considerably more debt than one dependent on its founder. Most deals combine senior debt, a buyer contribution and deferred consideration rather than relying on one source.
Part of the purchase price paid later, either on fixed dates or tied to performance through an earn-out. It reduces the amount you need to fund on day one and gives the lender comfort that the vendor still has something at stake if the business does not perform as described.
Not completed, but started. Lenders want to see that financial and legal due diligence is underway and to know who is doing it. Running the two processes in parallel is normal, and the diligence findings usually shape the final funding structure rather than simply confirming it.
Yes, and it is often the most efficient route. An invoice facility against its sales ledger, asset finance against its equipment, or a charge over property it owns can all sit alongside the senior debt, which usually produces a better total than asking one lender to stretch on cash flow alone.
Longer than a term loan. From signed heads of terms, three to four months to completion is a realistic working assumption, and the pace is usually set by due diligence and legals rather than by credit. Anything faster generally means the diligence started earlier.
Against the target’s sales ledger, often used to reduce the senior debt needed on completion.
Where the target owns its premises and the property can carry part of the funding.
We will come back with what the target’s earnings realistically support, where the structure needs work, and which lenders fund acquisitions in that sector.
