Alternative Forms: Debt funds have long since established themselves as alternative financing providers.
Traditional approaches are becoming increasingly difficult to implement these days, while alternatives such as management buyouts (MBOs) or management buy-ins (MBIs) are gaining greater prominence as succession strategies. In this context, in addition to the question of whether the successor is already known within the company, the financing of the transaction plays a central role. After all, it usually determines the success or failure of the business transfer.
Equity Capital – The First-Loss Piece
The amount of equity that buyers can contribute is highly relevant in the context of a business acquisition. After all, the goal is to maximize business earnings and, consequently, the return on investment. Traditional transaction financiers, such as banks, in particular, often require high equity ratios of up to 50 or 60 percent. However, these pose a challenge, especially for potential MBO and MBI candidates.
Alternative Forms of Financing
In the context of larger mid-market transactions, debt funds have long since established themselves as alternative financing providers. Funds offer corresponding alternatives for every component of purchase price financing. In addition, direct lending platforms have increasingly established themselves in this segment in recent years, particularly for smaller transactions and when speed is of the essence.
With financing solutions that are partially standardized, this approach offers various advantages:
No need for collateral: The financing remains an unsecured senior tranche, benefiting both parties: The senior lender has a level of security similar to that of traditional subordinated financing, and the client receives additional debt capital.
No equity kickers: Equity kickers and similar surcharges are eliminated. Only fixed compensation components remain.
High speed: The use of digital technology speeds up the process, which can be particularly crucial in transaction financing.
For smaller transactions, it is even possible to secure full financing through a P2P platform. This expansion of access to financing is an added value that will be particularly crucial in the coming years, as the number of external succession deals continues to rise.
In the end, everyone benefits: The outgoing entrepreneur receives an attractive purchase price, and the successor receives a manageable financing structure that is attractive to them.
