Mergers and acquisitions can benefit businesses in many ways, as they can help companies drive growth, acquire new knowledge, improve their output and move into new markets. However, financing this type of deal can come with its challenges, resulting in the need for innovative funding solutions.
Explore the different ways businesses can fund mergers and acquisitions to help you find the best solution for your enterprise.
What Is M&A Financing?
M&A financing is the process of funding the consolidation of two companies through various financial transactions. These transactions often require a considerable amount of capital. Aside from the company’s existing cash reserves, the primary source of funding is debt or equity financing. The capital can be used independently or collaboratively to fund merger and acquisition transactions.
How to Finance a Merger or Business Acquisition?
The following are a few of the different ways to finance mergers and acquisitions:
Equity Only
Using your company’s equity to finance a merger or acquisition is an excellent option for avoiding mandatory interest and loan repayments. When the merger results in a newly formed company, shareholders from both companies will own a stake in the new business.
Cash on Hand
If your company has a significant amount of cash on the balance sheet, you can fund the acquisition without any outside capital. Financing an entire purchase may require years of saved-up profit depending on the company’s size. With this option, you will likely want to consider a hybrid financing solution to offset lowering your company’s liquidity.
Bank Loan
Banks often have provisions for M&A financing loans. However, they will look at factors such as the company’s industry, past cash flow trends, possible assets that can be secured, and more before