The top structured financing options for today’s M&A deals

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Merger and acquisition activity among businesses of all sizes is heating up. In a market environment in which interest rates remain historically low, buyers — especially private equity, hedge fund and cash-flush businesses — are seeking strategic acquisitions.
Finding the right buyer for a major brand or the small business you spent a lifetime building won’t be the challenge. Rather, finding the right one and structuring the transaction will be daunting. Here’s what you should consider.
Sizing up your chances
Larger companies with established distribution channels are typically best positioned to buy today. They’re looking to grow and it’s more expedient to buy than build. While these buyers may have the resources and knowledge needed to execute a purchase, businesses with solid succession plans and finances in order are best positioned for a sale.
Don’t go it alone
A once-in-20-year transaction, like the sale of your business, should be aided by someone with a depth of financial knowledge within your market. Look for an adviser who understands the consumer trends and competitive environment affecting your business. An adviser who’s responsive with a variety of financing solutions, is well connected with strategic investors and knowledgeable on recent activity within your industry can help you fine-tune the sales process and seize the best opportunity.
Determining the deal structure
Structuring a deal largely depends on your unique opportunity and your objectives in transferring your ownership interests. The purchase may involve financing from the buyer in the form of debt, such as bank debt or issuing bonds, and/or equity such as issuing stock.
For businesses producing a stable cash flow, mezzanine financing can bridge a conventional loan against assets and the total value of the purchase. While mezzanine financing carries a higher interest rate, more businesses are opting for it as an avenue to obtain financing without issuing equity and diluting their business ownership.
A buyout structure may involve an earn-out provision consisting of a stock transfer over an agreed upon timeframe. If you share ownership of the business with partners, consider the benefit of a cross-purchase agreement or an entity-purchase agreement providing key-person insurance on all business experts. Such coverage can provide proceeds used to buy out a business share and ensure a smooth transition should you or a business partner pass away.
If transitioning ownership within your family, consider a combination of capital sources. This enables one portion of the buyout to be funded at closing through debt financing and another through an earn-out provision tied to the business’s financial performance.

Whatever your motivation for selling your business, preparation and the help of a knowledgeable financial professional are key to make sure the sweat equity you put into all you built over the years endures. The decisions you make now can help you and yours secure a bright future.

This column is brought to you by The Huntington National Bank, Member FDIC. To learn more about selling a business, contact Jeremy Gutierrez, Senior Vice President, Business Banking at Huntington Bank. Reach him at [email protected] or (614) 899-8222. More information is also available at