In a business acquisition, the financing structure is at least as decisive as the price. An overly aggressive structure places such heavy debt-service pressure on the business that no headroom remains for investment — precisely when a new owner needs it most.
- Layering senior bank debt, vendor loans, equity injection, and mezzanine finance
- Amortisation schedule aligned with free cash flow
- Earn-out to bridge valuation gaps
The typical capital structure
- Buyer's equity injection — skin in the game, typically 10 – 25%
- Bank acquisition facility — the cheapest tier, backed by security
- Vendor loan — subordinated, keeps the seller committed
- Earn-out — portion of the consideration contingent on future performance
- Mezzanine or equity participation — to bridge the remaining gap
Valuation as the starting point
Virtually every acquisition discussion begins with valuation. A multiple on normalised EBITDA provides a market benchmark; a DCF calculation delivers the substantiation. More critical than the methodology is normalisation: exceptional items, arm's-length director-shareholder compensation, rent paid on shareholder-owned property, and surplus liquidity.
Lenders test your valuation against their own model. A purchase price that cannot be serviced out of cash flow simply will not get funded — regardless of how reasonable the multiple feels.
Frequently asked questions
Can I acquire a business without putting in my own capital?
Almost never entirely. Lenders demand commitment from the buyer. That said, the buyer's equity contribution can partly consist of a vendor loan, an equity co-investment, or a phased buyout where you acquire shares out of future profits.
What is a management buy-out?
An MBO is an acquisition by the incumbent management team. Because the management already knows the business, lenders often perceive the risk more favourably than with an external purchaser (MBI).