Financing Transactions

Without financing, deals don't get done. How much cash is your buyer bringing to the table?!

Prior to going to market it's important for sellers to understand what's likely to go into financing a deal for a buyer AND understand their buyers' financing positions.

Undercapitalized buyers are likely to show up with less cash at closing and rely more heavily on seller financing and earnouts, not just to mitigate risk but because it's the only way equity-poor buyers can make a deal work. That's something sellers need to identify early on before devoting substantial time and resources to transacting with a particular buyer or going under LOI and exclusivity if they're looking for a more typical structure.

According to GF Data, in 2021 (admittedly a bit dated at this point, and it's safe to assume that equity has played a more prominent role in deals over the last 18 months) for deals from $10-250M:

SENIOR DEBT comprised roughly 30-40% of financing for each deal. Sellers should take note that any payments owed to them through seller financing or otherwise will be subordinated to senior debt.

JUNIOR / MEZZANINE DEBT comprised roughly 7-16% of the financing stack. Sellers should take note that any payments owed to them through seller financing or otherwise will be subordinated to mezz debt, too.

BUYER EQUITY INJECTIONS comprised roughly 34-43% of the capital stack.

SELLER ROLLOVER EQUITY comprised roughly 11.5-15% of the capital stack.

In the middle market, if your buyer cannot provide 30% equity, you should expect deferred and contingent consideration coming. In that situation, it might make more sense to go with a lower offer with more purchase-price certainty.