Methods for Financing Mergers and Acquisitions

Mergers and Acquisitions, or M&A for short, is an umbrella term that’s used to refer to the consolidation of two companies.

A merger is when two companies’ assets are combined through financial transactions. On the other hand, an acquisition is when one company acquires another.

However, in either case, the process needs to be supervised by a legal firm, and you need to seek help from a financial institution for all financial settlements.

As far as the funding part is concerned, here’s how you can go about it:

Issuing stock

Whenever a company is seeking to merge with another, they do so because they have healthy financial statements and positive cashflows. It can, therefore, be safely assumed that the company is in a good financial position to issue shares.

Shares are like certificates of ownership. When a company floats shares, it allows investors to become partial ‘owners’ of the company. The shares establish their ownership in the company and are sold at a certain par value. Even if one share is priced at $10 and the company sells 500, it can raise $5,000 easily. The greater the profitability of the company, the higher the share price. In return, the shareholders will need to be paid fixed yearly dividends.

However, in such cases, the volatility of the stock market also plays an important role. So make sure you’re issuing shares when the market is doing well.

Paying with cash

This option might not be feasible for every company. However, cash transactions come with their own set of benefits.

Unlike issuing stock, cash transactions are quick and hassle-free. You don’t need to wait until the stock market promises good returns or the share prices go up.

You can pay cash instantly and get started with the merger or acquisition process. Other than that, the transaction is also mess-free. There are few or no intermediaries or third parties involved. Another advantage is that unlike stock, the value of cash is not too volatile. Even if your company isn’t doing too well financially, it won’t affect cash transactions.

The only problem you might face is that of different currencies. Dealing with multiple currencies could be a challenge, especially if the exchange rates differ a lot on a day to day basis.

Applying for a loan

Asset-based loans and hard money loans are two of the most financially viable options when it comes to financing mergers and acquisitions. Taking up debt in this way is beneficial because it doesn’t come with a lot of terms. The only cost your company pays is the financial cost of interest payouts.

Asset-based loans are particularly helpful because you could use high-level collateral to qualify for easy terms. If your company is doing well and your credit history is strong, the lender might offer you a better lending rate.

If you’re based in Forth Worth TX or Madison WI and want to acquire a hard money loan for your next merger, Global Capital Partners Fund LLC will be glad to help you consider your options. Get in touch to get started with your hard money loan process.

Categories: Finance

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