Capital is a necessity for executing on a strategy that involves mergers and/or acquisitions. There are many ways to fund the transaction, but the funds are generally used for the same things; the purchase price but also additional costs such as legal fees, premises and inventory. Not to mention capital required for change management after the transaction closes.
The most common form of M&A involves the acquisition of one company by another through the purchase of shares and/or assets of another. This may lead to the creation of a new entity or the merger of one in to another. Such transactions enable companies to rapidly expand by a land-grab of new customers, product expansion and economies of scale.
You can fund M&A activity through many forms of funding, although in our experience, you are most likely to have success raising capital through private credit and/or ABL.
The reasons for and benefits of M&A can be far reaching. The effectiveness of M&A depends on strategic fit, financial rationale, and successful integration. As advisors we have seen multiple scenarlos including;
Items to consider:
M&A transactions can be complex and completion rates from letter of intent are under 50%. Of those that do complete, not all of them are success stories. M&A can be an absolute game changer for businesses, but it needs deep consideration. As advisors we suggest that business owners and entrepreneurs consider many things before entering into any transaction: