Financing your company’s external growth through debt

In an economic context where company growth often requires the acquisition or buyout of another company, raising debt to finance external growth is a strategic lever. This method of financing, whether through banks or debt funds, enables companies to strengthen their financial structure, invest and grow without diluting their capital.

But how do you finance an acquisition effectively? What types of financing are available? What are the risks and levers to master for a successful financing strategy?

Why choose debt to finance an acquisition?

Recourse to bank or private debt enables a company to accelerate its development by acquiring a competitor, integrating innovative know-how, or diversifying its activities.
This financing offers several advantages:

• Preserving shareholders’ equity,
• Take advantage of financial leverage,
• Optimize liquidity and profitability,
• Financing growth without diluting partners’ capital.

The main debt financing solutions

1. Conventional bank financing

Bank debt is still the preferred method of financing external growth for many companies.
It is mainly based on :

• Senior debt, the least risky solution for banks and often with competitive rates,
• Junior or mezzanine debt, riskier but more flexible, used to complement senior debt.

2. Private debt market

Since the post-financial crisis period, the private debt market has seen the emergence of innovative solutions supported by private debt funds.

This type of financing is aimed at unlisted companies wishing to raise debt on terms that are often more flexible than those of traditional bank financing.

Unitranche debt is an example of a hybrid product between senior debt and mezzanine offered by debt funds.

3. Other financing methods

• Bond: issue of bonds to raise funds on the markets,
• Private equity / capital-investissement: raising equity capital to supplement debt,
• Tailor-made solutions with banking pool, insurer or syndication.

Key stages in raising debt to finance external growth

1. Identify the target to be acquired and carry out a due diligence audit (financial, legal, HR).
2. Define a financing strategy based on cash requirements, risk level, debt capacity and available cash.
3. Solicit several partners (banks, investment funds, insurers, etc.) to obtain the best conditions.
4. Negotiate debt conditions: interest rate, maturity, guarantees, specific clauses.
5. Structuring debt (senior, mezzanine, unitranche, bond) according to deal profile and acceptable risk level.
6. Ensure post-acquisition integration and performance monitoring to meet financial commitments.

Risks to watch out for with debt financing

Raising debt to finance growth can expose companies to certain risks:

• Poorly managed leverage can weaken the financial structure,
• Rising interest rates increase the cost of debt,
• ESG criteria are increasingly analyzed by investors and lenders,
• Excessive debt can limit future capacity to invest or obtain new financing,
• Some solutions require a personal guarantee or collateral assets,
• Early repayment or default clauses must be negotiated in advance.

Conclusion: intelligently structuring debt, an asset for external growth

Choosing the right type of financing to buy a company or finance external growth requires a detailed analysis of needs, a solid financing strategy, and rigorous risk management.

At ACOM, we help managers structure their financing operations, raise funds and manage debt for each strategic acquisition, with tailor-made expertise.