Preparing a Business for Acquisition Finance

Acquisition finance cannot be assessed solely by applying a multiple to EBITDA. A lender needs to understand what is being bought, how the price was established, the quality of earnings, the post-completion structure and how debt will be serviced if integration takes longer than expected. The proposal should connect the legal transaction, commercial rationale and financial model.

Define the transaction perimeter

State whether the buyer is acquiring shares, assets or a business and identify the purchasing entity, target, seller and any holding company. Explain the enterprise value, equity value, debt-like items, working-capital adjustment, deferred consideration and transaction costs. A sources-and-uses schedule should reconcile purchase consideration, fees, refinancing, sponsor equity and each proposed debt tranche.

Test the quality of earnings

Reported EBITDA should be reconciled to statutory accounts and management information. Normalisations and add-backs must be specific and supported. Customer concentration, recurring revenue, gross margin, working capital and capital expenditure may matter as much as the headline profit number. Cash conversion should be considered over a representative period.

Understand the existing obligations

Prepare a complete schedule of debt, leases, tax liabilities, guarantees, litigation, change-of-control provisions and security. The acquisition may require facilities to be repaid or consents obtained at completion. Off-balance-sheet commitments and deferred consideration should be reflected in the post-completion cash-flow model.

Model the combined business

The model should distinguish stand-alone trading from synergies. Revenue synergies are generally harder to deliver than cost savings and should not be used to support debt service without credible evidence and timing. Include integration costs, duplicated overhead, retention payments, recruitment, systems migration and working-capital effects.

Management and integration

Identify who will run the business after completion, which key people must remain and how incentives align. A clear 100-day plan should cover governance, reporting, customers, people, systems, cash control and operational priorities. If the target depends heavily on the seller or one employee, the transition arrangements and retention protections are material.

Prepare for lender diligence

A well-prepared pack normally includes the heads of terms or sale agreement, financial due diligence, legal and tax workstreams, historical financials, customer and supplier evidence, debt and security schedules, management information, the acquisition model and an integration plan. Acquisition finance is more credible when the proposal explains not only why the transaction is attractive, but also how the combined business remains resilient if the planned benefits are delayed.

Prepare an acquisition finance pack. Send Charter HCP a high-level summary of the business, proposed transaction, funding requirement and intended repayment or exit, and a member of the team will confirm whether the opportunity falls within Charter HCP's scope.