Middle Market M & A, 2nd Edition

CHAPTER 15Financing Sources and Capital Structure

As we have attempted to illustrate throughout this handbook, mergers and acquisitions (M&A) transactions—acquiring, recapitalizing, or divesting (exiting)—can be used to accomplish a number of strategic objectives. M&A can help companies and investors build value and realize it, and it can be employed by owners, investors, corporate development teams, and private equity investors.

This chapter takes a high‐level view of financing for middle market transactions, starting with a financing primer and a framework for thinking about how to choose among the various alternatives depending on the type of deal and its strategic purpose; it then discusses the basics of financing a buyout and an acquisition; and then it provides an overview of various funding sources and types.

PERSPECTIVE

In many instances the distinction between selling a company (i.e., an exit) and raising capital is measured by the amount of equity sold and the contractual rights obtained by the buyer or investor. Financing growth and acquisitions raises the issue of long‐term shareholder objectives, which most of the time involves eventual liquidity.

There are many reasons a middle market company might seek to raise capital. For example, as Baby Boomers continue to plan their legacy and succession, they may be trying to balance multiple objectives at once: financing the ongoing growth of their business, creating liquidity for the owners, and laying the foundation ...