Financial buyers often use a combination of debt and equity to finance business acquisitions, with a typical down payment of 20-25%. Financial buyers are focused on the return of investment (technically internal rate of return, or IRR).
It may be impossible to know a given financial buyer's funding sources due to the proprietary mix of capital instruments that a financial buyer may be using to purchase your business, however in broad terms some common funding sources for financial buyers (e.g., private equity firms) when acquiring a business include:
- Debt financing: Bank loans, including SBA loans, corporate bonds or other debt instruments;
- Equity financing: Investments from the financial buyer's own fund or limited partners, raising equity capital from outside investors; and/or
- Seller financing: you as selling owner providing a loan or taking an equity stake as part of the sale.
Research indicates that financial buyers often use a combination of debt and equity to finance business acquisitions, with a typical down payment of 20-25% of the total purchase price. Financial buyers are focused on the return of investment (technically internal rate of return, or IRR), as opposed to any strategic benefits of the acquisition (as a strategic buyer would). This suggests they are primarily concerned with the financial performance and growth potential of the target business to generate returns for their investors.