Flexibility

In arriving at the right acquisition financing structure, time and unexpected issues are key. Most acquisitions have unknown variables and take years to properly integrate. Some operational steps are quick and others involving fundamental organizational change take a lot longer. Acquisition success ultimately is determined by the level of positive change achieved by the acquirer. Many acquisitions encounter negative surprises post closing. Despite the unexpected, good management teams can reposition the business through implementing new plans. An acquisition financing structure needs flexibility so that the management team has the chance to follow through on this new course. The two most important elements to repositioning a company are:

• Time to implement the new operational plan.
• Capital to invest in the new operational plan

This need for time and capital requires an acquisition financing with high levels of structure value. If a transaction is structured with all short term debt, there is little opportunity to change course. An acquisition financing with a high structure value gives flexibility is an insurance policy for management. High structure value consists of a balance of senior debt, mezzanine debt and equity.