Richard Duffy says that while there are plenty of funders in the market, securing funding is not easy. “You should seek advice from an experienced adviser at the outset,” Duffy says. “Your adviser should, importantly, be well networked and have access to both debt and equity funding partners, locally and internationally. They should ensure your business plan is as robust as possible before presentation to funders, work with you to establish your funding requirement and assess what type of funding support you need, which best fits your capital structure. In summary, in order to be successful: prepare well, be credible, seek advice.”
As finance for funding M&A usually comes from a combination of debt and equity sources, Duffy suggests that the type of finance is dependent on the lifecycle of the development of the business and its capital structure at the time it goes to raise finance.
“The good news is there are more funding options available than any time in the recent past, ranging from traditional bank funding to alternative debt providers and private equity players,” says Duffy. “Availability of capital is no longer an impediment, assuming you have a business plan that is credible, have growth potential and you have capable management who can deliver the plan.”
Duffy advised that a number of factors need to be considered when assessing the optimal funding structure and sources of finance for prospective M&A. “The first is sustainable level of cashflows in the combined businesses; the second is the upfront costs associated with the integration of the target and timing of potential cost savings,” he says.
“Then companies need to evaluate working capital and capital expenditure requirements, level of security available for funders and, finally, target return on equity if required” - Richard Duffy adds.
With increasing interest rates and rising inflation, Richard Duffy says that many companies are looking to lower their leverage ratios, while trade and private equity buyers are seeking to deploy their cash upfront, which will result in lower levels of debt being used in M&A deals.
Content adapted from The Irish Times.