Acquisition finance
Debt raised to buy a business or a shareholding, sized against the target's sustainable earnings and repaid from the profits of the business being acquired.
The target repays the debt, so the target is what gets underwritten — which is better news than most buyers expect. Your own balance sheet carries far less weight here than the question of whether the business keeps earning once its founder steps away, and there is a great deal you can do to show a lender that it will.
The parameters
Where this product sits.
Ranges across the market, so you can sanity-check any quote — ours or anyone else’s — before you take it seriously.
- Senior debt
- 2–3× EBITDA
- Adjusted, sustainable EBITDA. Stronger, asset-backed businesses reach higher; people-dependent ones do not.
- Buyer equity
- 20–40%
- Of the total consideration. A buyer with nothing at risk is a difficult case however good the target.
- Vendor deferred
- 10–30%
- Loan notes or earn-out. Keeps the seller invested in a clean handover and fills the gap between debt and equity.
- Debt service cover
- 1.25–1.5×
- Free cash flow against total debt service, tested against a downside case rather than the plan.
- Term
- 3–7 years
- Amortising. Longer where commercial property forms a substantial part of the deal.
These are indicative market ranges rather than a quotation — they are here so you can sanity-check any offer you are shown. Your own terms will be priced on the asset, the borrowing entity, your trading history and the exit, and we will put real figures in front of you on the first call.
Typical cases
What it is used for.
Management buy-outs
An existing team buying the business they already run. The most fundable case in this list, because the people who make the numbers are staying.
Trade acquisitions
Buying a competitor or a complementary business. Lenders will look at the combined entity, and evidenced cost synergies can support more debt.
Share buy-backs
Funding the exit of a retiring or departing shareholder, with the company itself buying and cancelling the shares.
Buy-ins
An outside buyer with no history in the business. The hardest to fund, and where relevant sector experience and a strong second-tier management team matter most.
In detail
How it works in practice.
How much debt a business will carry
Start from adjusted EBITDA — earnings before interest, tax, depreciation and amortisation, with the owner's excess remuneration, one-off costs and any non-trading items normalised out. That figure, not the asking price, sets the debt.
Senior debt typically lands between two and three times that figure. A business with £600,000 of sustainable adjusted EBITDA supports somewhere around £1.2m to £1.8m of senior debt. If it is being sold for £3.5m, the remaining £1.7m to £2.3m has to come from your equity, deferred consideration, or an equity investor.
The multiple moves with the quality of the earnings. Recurring contracted revenue, a spread of customers and tangible assets push it up. Project-based revenue, customer concentration and heavy reliance on the departing owner push it down, sometimes below two.
Structuring the gap
Almost no acquisition is funded by senior debt alone. The usual structure stacks it: senior debt from a bank or debt fund at the bottom, then vendor deferred consideration, then your equity, and on larger deals a mezzanine or private equity layer between them.
Vendor deferred consideration does more than fill a funding gap. A seller taking 20% of the price over three years, subordinated to the bank, is a seller who has an interest in the handover going well and in the customer relationships transferring. Lenders read a vendor's refusal to defer anything as a signal, and so should you.
Earn-outs link part of the price to performance after completion. They bridge a genuine disagreement about value, and they are the single most common source of post-deal disputes. Define the measure precisely, in writing, including exactly how it is calculated and who prepares the accounts.
What the process actually costs and how long it takes
Eight to sixteen weeks from heads of terms to completion is normal, and it is rarely the lender that sets the pace. Financial due diligence, legal due diligence and negotiating the share purchase agreement run in parallel and each can surface something that changes the price.
Budget properly for advisers. Financial due diligence, legal fees on both the acquisition and the security documents, and the lender's own arrangement and monitoring costs are all payable, and much of it is payable whether or not the deal completes. On a £2m acquisition, six figures of professional costs is not unusual.
Our role is on the debt: which lender, what structure, what covenants, and what the facility agreement actually commits you to. You will also need a corporate solicitor and a due diligence accountant, and if you do not have them we will say so rather than pretend a broker covers it.
Before you sign
Four things worth checking.
Covenants
Leverage, debt service cover and capital expenditure limits are tested quarterly. A breach is a default even when payments are current, so negotiate headroom against a downside case.
Owner dependence
If the departing owner holds the customer relationships, the earnings you are buying may not survive them. Handover periods and non-competes are as important as the price.
Working capital at completion
Deals are usually priced on a normalised working capital target. Get the definition and the target agreed early — it commonly moves the final price by six figures.
Personal guarantees on top
Even with the target's assets secured, most lenders will want guarantees from the buying management. Negotiate the cap and the release conditions.
Very rarely, and it is the question most often asked. Lenders want the buyer to have real money at risk, typically 20% to 40% of the consideration.
The realistic route to a smaller contribution is a management buy-out with substantial vendor deferred consideration, where the seller effectively lends you part of the price because they know the business and trust the team. Even then, expect to put in what you can and to guarantee the debt.
For a buyer, an asset purchase is usually cleaner — you take the trade and the assets you want and leave historic liabilities behind. For a seller, a share sale is usually better for tax, so most negotiations start there.
It also affects the funding. An asset purchase can often be part-funded with asset finance and a commercial mortgage on the property, which can be cheaper than pure acquisition debt. This is a question for your accountant and solicitor, and it should be settled before heads of terms.
A test that the business generates enough free cash flow to cover its total debt payments by a margin — commonly 1.25 or 1.5 times, tested quarterly on a rolling twelve-month basis.
It is the covenant most likely to be breached first, because it responds immediately to a poor quarter. Negotiating where it is set and how it is calculated is worth more than shaving a quarter point off the rate.
Considerably. Freehold property in the target can be funded separately on a commercial mortgage at a much lower rate and a much longer term than acquisition debt, reducing the expensive senior debt needed.
Splitting the property out into a separate entity that leases back to the trading company is a common structure with real tax and succession advantages. It needs accountancy input at the planning stage, not afterwards.
Commonly 10% to 30%, over one to three years, and subordinated to the senior lender. Beyond that, sellers usually resist and lenders start asking why.
A seller willing to defer a meaningful share is one of the strongest signals a lender can see. A seller demanding every pound at completion invites the question of what they expect to happen next.
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Related facilities
Business loans
Term debt for the business itself, secured or unsecured.
Asset finance
Funding for equipment, vehicles, plant and machinery.