Acquisition Finance Consulting | Understanding Acquisition Finance


As an acquisition finance consulting firm, Lantern Capital Advisors works with our clients to achieve strategic acquisitions as part of their growth strategy. Lantern works with clients in order to successfully arrange and execute single or multiple mergers or acquisitions by raising the acquisition financing required as determined in the business plan. Lantern Capital Advisors helps our clients achieve acquisition financing during the business planning process from issuing letters of intent (LOI) to execution of the acquisition concurrent with raising the growth capital. 

Similar to our expertise with successful management buyouts, as acquisition finance consultants, we help analyze acquisition targets in order to pre-address how the acquisition will best fit into the corporate financial model and determine the amount of the acquisition finance deal in order to achieve the funding required.

Acquisition Finance Consulting:  Creative Ways To Build Shareholder Value

When considering an acquisition (and alternatives for acquisition financing) there are always three key items of consideration. In order of importance they are: 

  • The continued growth opportunity provided by the acquisition
  • The acquisition financing terms
  • The purchase price

Many acquisitions that fail often do so because those priorities are not in line. The most common mistake is rationalizing an acquisition because of an attractive purchase price, rather than its strategic importance to the buyer’s existing business and future growth plans. 

Listed below are a few important pointers, for acquiring and executing an acquisition finance deal that can build significant value for the buyer’s shareholders.

Identify The Continued Growth Opportunities

Acquisitions always provide immediate growth as the two companies are combined. The better question is once combined will they provide continued growth? Good acquisitions always provide some opportunity for continued growth. That growth may come from better serving a buyer’s existing customers, ease of expanding into new markets, or even as the preliminary step towards continued acquisitions of similar type businesses over a period of time. Attractive acquisitions always have a clear opportunity for follow-on growth because they are strategic to a buyer’s current business. Conversely, most acquisitions that don’t ultimately create additional value, almost always have trouble answering the question of how the acquisition will provide continued growth after being purchased.

Realize Acquisition Financing Terms Are More Important Than The Purchase Price

Not unlike buying a car, the true cost buying a company is comprised of many components. In financial terms it’s both the cost of the business and the cost of the acquisition financing. Most buyers have far more to gain by the spread in acquisition financing terms than the spread in the purchase price. To illustrate, assume a buyer has two alternatives for financing an acquisition 1) to finance the acquisition by selling 25% of the buyer’s stock or 2) paying 10% more for the acquisition but financing the acquisition entirely with debt. Most buyers would pick option 2. Why? Because over time, the 100% debt deal will create more value for the existing shareholders as the debt is paid down. Financing that dilutes a buyer’s ownership position by 25% immediately raises the effective purchase price of business by the same amount or more. As such, acquisition financing terms can swing substantially from one institution to another. It’s not uncommon for the total cost of acquisition financing to vary by more than 50%. Do acquisition prices swing that much? No. Do acquisition financing terms? Absolutely.

Seek A Cooperative Seller

To allow enough time to get the best possible financing terms, it can take 120-180 days to close on both the financing and the acquisition. As a result, a buyer needs a cooperative seller. How do you get a cooperative seller?

Make Every Effort To Give The Seller Their Target Purchase Price

Most sellers have a price in mind and with a little analysis you can quickly determine whether their price is reasonable. If you are convinced the target business will add value to your business and can be financed, make the seller happy and motivated by offering them their target purchase price.

Give The Seller Quick Feedback

Make your initial offer simple, and attractive. Give the seller as much cash upfront as possible. Avoid overly creative’ strategies that make the seller think they are financing their own acquisition. Follow-up the verbal offer with a formal Letter of Intent. Once you have a signed Letter of Intent, you have a committed seller.

Make The Process Easy For The Seller

Try to minimize the seller’s time, effort and expense. This will keep the seller energized and motivated throughout the transaction. Share your key milestones with the seller, particularly as you secure financing for the transaction. Having a motivated, cooperative seller is essential to secure financing at attractive terms.

Create A Comprehensive Business And Financial Plan

To get the best possible financing terms and improve the likelihood of success, create a business plan that details the areas of strategic, business, and financial synergies as well as a detailed picture of the future projections of the combined business. Many acquisitions fail to perform because the detailed planning was never done.

Solicit Multiple Financing Sources

With a strong business plan in hand, the company is in an ideal position to seek financing customized to their needs. Most important is a well developed plan allows buyers to get financing based on the combined businesses not just the buyer’s current business. A business plan illustrating the combined operations provides more collateral, more cash flow and greater certainty and usually substantially better acquisition financing terms. But, customized acquisition financing can only be found if you provide the detailed information necessary for financial institutions to understand it. Financing terms often vary significantly from one institution to another and substantially impact the total cost of the financing (and possible ownership dilution). Also, the financial covenants and risks can also vary substantially from one group to another. As an example, some institutions may require personal guarantees or stock ownership (or warrants) while others do not.

Copy The Financial Partner's Homework

It’s always important to do due diligence on any acquisition target. Most companies can perform adequate due diligence on a company’s operations using a checklist, common sense, and a little effort. Thankfully, your financing partner will also perform their own due diligence, particularly on the financial aspects of their business. The benefit of using their work is not only less work and expense for the Company but should they find any problems, both the company and the financing partner can go back to the seller to address the problem. Sellers are usually much more responsive to questions and changes coming from the financing group that also has the checkbook to write the seller’s check.​

What our clients are saying...

“I spent years doing research and speaking to advisors, investors, and banks.  I could find no support for the kind of management buyout transaction I wanted to do and believed could be done.  That is, until I stumbled upon Lantern Capital Advisors.  Just one phone call to Lantern and I heard the words, "it absolutely can be done!"  Lantern then helped me make it happen.  I will be forever grateful to Lantern Capital Advisors for their counsel, expertise, and hard work in leading us to our goal.”

— DF, CFOFull Service Call Center

“Lantern presented us with financing options far exceeding the traditional bank proposals in the past.  They spent enough time to understand the issues surrounding our need so they could concentrate on the options that would be pertinent to us, significantly reducing our work on the project.  The next time we have a financing need, I am confident I will discuss it with Lantern first.”

— SS, OwnerRetail Services Center

“Lantern Capital Advisors helped us look at many different types of financing alternatives and helped us find a new capital provider that increased our funding limits and released some of my personal collateral.  As our business began to grow rapidly, Lantern also helped us modify our financing terms with our new capital provider.  Since that time, Lantern has helped us evaluate acquisitions, set long term and short term financial goals, and serves as my on-going corporate financial advisor.  I enjoy working with Lantern and I trust that their team have my best interests at heart.”

— DM, CEOHouston, TX

“I spoke with multiple financial firms about the possibility of conducting a management buyout of a particular division.  Most of them seemed more interested in developing a long term relationship with the parent company than they were in securing the best possible deal for me.  I was then referred to Lantern Capital Advisors and things just clicked.  They listened carefully to my vision for the business and patiently explained every step of the management buyout process.  They met every expedited timeline and used their extensive network to find me the best possible investment group.  I don't know that a deal would have been completed without their guidance.  I would recommend Lantern Capital Advisors to anyone contemplating a similar transaction.”

— JR, CEOConsumer Products Company

“Lantern helped us look at many different types of financing alternatives and helped us find a new capital provider that increased our funding limits and released some of my personal collateral.  As our business began to grow rapidly, Lantern also helped us modify our financing terms with our new capital provider.  Since that time, Lantern has helped us evaluate acquisitions, set long term and short term financial goals and serves as an on-going business financial advisor.  I enjoy working with Lantern and I trust that their team have my best interests at heart.”

— DM, OwnerServices Company

“I have worked with Lantern on several different projects with multiple companies.  Their past work has included corporate financial planning as well as securing financing options to fund faster growth, possible acquisitions, and additional working capital.  Funding needs have ranged from less than $5 million to over $20 million.  Lantern's work product, advice, and hourly based approach has worked well for us in many different ways.”

— AA, COOLos Angeles, CA

Learn More About Raising Capital With Lantern Capital Advisors

Lantern Capital Advisors has experience successfully helping growing enterprises and entrepreneurs raise capital with revenues that typically range from $5 Million to $150 Million.