Debt financing, borrowing of external liquidity, i.e., loans and/or working capital usually from banks or special financing companies, such as the widespread leasing of fixed assets, installment plan, factoring, forfaiting, and the participation of third parties in the company in the form of debt capital.
If we apply these types of financing to the purchase of a company, it becomes clear that the purchase of a company is possible in the form of "hard equity", with an equity investment, with debt capital and in various mixed forms of equity and debt capital.
In the case of mid-market transactions, debt capital is generally used to finance the transaction via banks or investment companies as lenders.
In the first step, banks analyze the probability of default in the form of a rating, of the company to be purchased and of the purchaser with all annual financial statements and extensive planning calculations as well as the necessary consolidations of the annual financial statements and planning calculations of both companies.
In parallel, the debt service to be rendered is subjected to an actual and planned cash flow calculation, which must result in a buffer cash flow of at least 20 % calculated over the term of the borrowing.
In this context, the buyer's equity contribution can play a significant role; this must always be demonstrated and raised in cash.
Private equity companies primarily focus on the business model, the products, and the professional suitability of the management. In the normal standard case, the investment company will participate in the company as a shareholder, whether in a minority or majority is a matter of negotiation or depends on the internal strategy of the investment company.The advantage for the entrepreneur or the company is that no private securities will have to be provided for the transaction structuring.
The objective of the investment company is primarily growth and thus an increase in the value of the company within a mutually agreed time frame; the capital required for this is also provided by the investment company.
We will be happy to clarify which type of financing is the most suitable for your project in a personal meeting. With us you can trust and build on discretion and transparency. With our know-how in corporate financing, we will advise you individually and in a targeted manner. Please feel free to contact us by phone or e-mail.