Deferred Finance can work with or as an alternative to Debt, Mezzanine and Equity.

Product Benefits

As well as enabling quicker completion of the transaction, Deferred Consideration Finance has major benefits for BOTH the Purchaser and the Vendor

Deferred Finance - Benefits For The Purchaser

Advisers to the Purchaser introduce Deferred Consideration Insurance to transactions, as they know they can do the following.

1. Plug the equity gap if no equity is available.

2. Reduce or eliminate private equity which would:

(a) assist in the financial structuring by agreeing the headline price but without the need for equity;
(b) ensure no dilution of ownership in the target business;
(c) ensure management maintain 100 per cent holding in the target;
(d) alleviate the pressure for a defined exit plan
(e) allow a management controlled strategy as they own 100%.

3. Enable the purchaser to compete with a cash rich trade buyer by agreeing to pay the vendor their full sale price, which also includes fully secured deferred payments.

4. Bring significant cost efficiencies for the purchaser. Previous transactions have shown the instrument reduces the cost of finance by:

(a) 66 per cent compared to a conventional package of debt, mezzanine and equity;
(b) 40 per cent compared to senior debt
(c) 73 per cent compared to mezzanine finance.

(All calculations based on five-year pay-back period)

5. Work in conjunction with or as an alternative to debt, mezzanine funding and private equity.

6. Avoid the need for numerous tiers of finance in a transaction.

7. Release valuable cash reserves to fund future business growth and allow the purchaser to pay the consideration out of future revenue.

8. Enhance the purchaser’s longevity as the underwriters have the option to buy out the lending bank and bring more emphasis on trading through difficult times.

Summary Benefits for the Purchaser

• More cost effective than any other finance
• Avoids diluting equity
• Reduces bank borrowings
• Plugs any equity gap if no equity is available
• Allows the purchaser to pay for the acquisition out of future revenue
• Purchasing directors are in full control of the company
• MBO directors obtain maximum personal benefit from their efforts in growing the business (eg following a successful exit)
• Ensures a quick completion
• Simplifies transaction by eliminating complex funding structures
• Shortens advisers’ transaction time thereby reducing costs
• Helps achieve Vendor’s expectations