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Did you know what are the different ways to finance an acquisition?
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Well some of the common ways for an acquisition or buy out are: -
- Cash Buyout
- Debt Financing and Leveraged Buy Out
- Factoring, forfaiting or invoice discounting,
- Hybrid Buy Out (Combination of Cash & Financed buyout)
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In case if the company does not has, or does not wants to raise cash, the second option that lies with the company is to finance the deal through raising bonds, or going to private equity, or an investment/ commercial bank for raising the required funds. This process of financing the acquisition is called Debt Financing. A special case of this sort of financing can be when assets of the acquired company is kept as collateral to raise the debt, this process is called leveraged buyout.
A generic Leveraged Buyout Structure
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Factoring or forfaiting is the process when company raises cash by selling all (factoring), or part (forfaiting) of its accounts receivables (obviously at a discount), to raise cash. If instead of selling the accounts receivables, it is kept as a collateral to raise finance, the process is called invoice discounting.
In most of the cases the financing involves more than one of the above processes, in that case it is called a Hybrid Buyout.
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Downloads : Optimal Leverage & Maturity Choice
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