January 2023 CEO Minute by Matt Plooster, CEO—The disruption of the credit markets in the second half of 2022 directly impacted many M&A deals – causing several company owners to lose material personal wealth in lost valuation, or to lose their deal altogether.
Many deals fell apart completely and were put on hold due to credit market disruption. Buyers – particularly private equity firms – often used this credit market dislocation in their favor to extend closing diligence, reduce both purchase price and cash at close.
There is a differentiator in our transaction process, however. Buyers do not need to hold this power over the sellers. The lack of available financing for the seller can be mitigated. And it is where unique M&A advisors with leverage experience and deep lending relationships, like Bridgepoint, can help clients avoid broken processes with staple financing for their M&A transactions. Interestingly, it is a service most boutique investment banks do not offer to their clients in the middle market. However, it is something we see as a critical step in the transaction process, and one that allows us to increase certainly to close, accelerates timelines and drives valuation for our clients.
Here is how it works: Our role as investment bankers is to source prearranged financing packages from several competitive lending sources on behalf of our client who wants to sell his or her company. The most favorable staple financing packages are then offered to prospective buyers to complete their acquisition bid and structures. This arrangement can help facilitate the completion of the deal, increase valuation and benefits both the buyer and seller.
To start, staple financing can accelerate the transaction process. Before the bid deadline, select lenders will review the acquisition opportunity and submit, to the investment bank, leverage terms they are comfortable with funding at close with a potential buyer. The most favorable terms will be presented by the investment bank to the potential buyers who indicate that they will be submitting an initial acquisition bid. Connecting lenders who have performed diligence on the opportunity with potential buyers will accelerate the closing process and significantly reduce financing risk, thus increasing the certainty to close.
Perhaps the most attractive aspect of staple financing for sellers is that it can help maximize the purchase price. Staple financing removes an element of risk for potential buyers and promotes competitive bidding. This competition will drive increased valuation for our clients resulting in substantially more net proceeds at close. Buyers are able to further maximize the valuation by contributing equity in addition to the staple financing bid while achieving their targeted returns.
Staple financing has proved to be a win-win for the buyer, who can complete the deal, and the seller, who can increase their bottom line from the sale. From our perspective as the investment bank that facilitated the deal, this is extremely rewarding. Bridgepoint has the unique ability to understand and source available debt structures during complex M&A market conditions. Our deep connectivity with lenders, ability to structure complex transactions, and Wall-Street-quality-process are all competitive advantages for our clients as they seek to monetize their life’s work and create generational wealth for their family. In the end, it’s a win-win all around.
Staple financing. Don’t do any M&A deal in today’s market without it.