Omni Law Financing the Acquisition Guide

Securing the right financing is one of the most critical steps in completing a merger or acquisition. The structure of the financing arrangement affects not only the purchase price but also the long-term success of the business after closing.

This guide explores standard financing options, key considerations, and the role of legal support in protecting your investment.

Cash Transactions

In a cash transaction, the buyer pays the full purchase price upfront. While straightforward, this option requires significant liquidity and may not be feasible for all buyers. Sellers often prefer cash deals because they minimize the risk of default. Legal guidance ensures the terms of payment are clearly defined and adequately documented.

Debt Financing

Many acquisitions are funded through loans from banks or private lenders. Buyers repay the debt over time, often using business revenues. While debt financing allows buyers to preserve cash, it also introduces repayment obligations that can impact profitability. Attorneys help negotiate loan agreements and ensure repayment terms align with the acquisition’s financial structure.

Equity Financing

Equity financing involves raising capital by selling ownership interests in the business. This option spreads risk among investors but requires buyers to share control. Legal support is essential to draft agreements that define investor rights, profit-sharing, and exit strategies. Equity arrangements must also comply with securities regulations.

Seller Financing

In some deals, the seller agrees to finance part of the purchase price, allowing the buyer to make payments over time. This arrangement can make acquisitions more accessible, but it requires careful negotiation of interest rates, repayment schedules, and security interests. Attorneys protect both parties by drafting clear, enforceable agreements.

Mezzanine and Hybrid Financing

Mezzanine financing combines debt and equity, offering flexible options for structuring acquisitions. While more complex, these arrangements can help bridge financing gaps. Legal counsel ensures these hybrid structures are tailored to the parties’ needs and compliant with financial regulations.