The Benefits of Hiring an M&A Advisor: Exploring Funding Alternatives

When a company needs resources to grow, expand, or prepare for a merger and acquisition (M&A) process, the first step is to evaluate the funding options available. “Funding” refers to raising capital necessary to sustain operations and promote the growth of a business. It can be obtained through several alternatives, such as debts, equity, debentures, and other more specialized forms of financing.

Having the expertise of an M&A advisor can be decisive in identifying the best funding alternative. With his experience, the advisor helps entrepreneurs analyze options, considering the company's financial situation and the strategic objectives of the transaction. Below, we highlight the main funding alternatives and how the support of an advisor can add value in choosing and implementing each one.

Funding Alternatives

Debt (Debt Financing)

Debt is one of the most traditional forms of financing, according to Investopedia. It can be obtained through bank loans or the issuance of corporate bonds. By opting for this alternative, the company borrows money and undertakes to return it with interest within established deadlines.

• Benefits: Property preservation, interest tax deduction, and lower costs compared to other forms of financing.

• Disadvantages: Default risk and pressure for regular payments, which can be a challenge for companies with variable cash flow.

Equity Financing

In equity financing, the company obtains financial resources by selling a part of its shares. This process can take place through an IPO (initial public offering) or private financing, such as the entry of venture capital or private equity.

• Benefits: No obligation to reimburse, access to new investors, expertise and network of contacts.

• Disadvantages: Dilution of shareholder control and profit sharing requirement.

debentures

Debentures are a type of long-term debt in which the company issues debt securities that are purchased by investors. This type of financing offers greater flexibility, allowing terms such as interest rates and terms to be negotiated.

• Benefits: Flexibility in terms and the possibility of converting into shares.

• Disadvantages: Default risk and priority in payment in bankruptcy.

Crowdfunding

Crowdfunding consists of raising small financial contributions from several people through online platforms. This model can be equity-based, where investors acquire a share in the company's capital, or reward-based, where investors are rewarded with products or services offered by the company.

• Benefits: Access to a wide network of investors, with no need for reimbursement (if it is reward-based) and valuable feedback from the market.

• Disadvantages: Difficulty controlling the process and the need to generate sufficient interest to achieve funding objectives.

Venture Capital (VC)

Venture capital (VC) is a type of equity investment carried out by investors who seek to support new companies with great growth potential, but also with high risk. According to Investopedia, VC investors generally invest in companies in the early stages or expansion stages.

• Benefits: Capital for rapid growth, access to strategic expertise, and high-level network of contacts.

• Disadvantages: Significant dilution of control and requirement for fast and high returns.

Factoring

Factoring is a form of short-term financing where a company sells its receivables to a financial institution (factor). This provides immediate liquidity, although it involves selling future assets at a discount.

• Benefits: Immediate liquidity and quick access to capital.

• Disadvantages: Sale of assets at a discount and reliance on receivables for financing.

Private Equity (PE)

Private equity, according to the Harvard Business Review (HBR), is similar to venture capital, but usually focuses on more mature companies. PE investors acquire companies or stakes in companies with the objective of improving their performance before selling them or holding a public offering of shares.

• Benefits: Access to expertise and significant capital for growth.

• Disadvantages: Dilution of shareholder control and pressure to generate quick returns.

Conclusion

Hiring an M&A advisor can be an important differential in choosing the best financing alternative for a company, especially in complex processes such as mergers or acquisitions. An experienced advisor assists not only in identifying the most appropriate source of capital, but also in optimizing transaction terms and mitigating risks.

Whether through debts, equity, debentures, or other forms of funding, having an expert ensures that the company makes strategic financial decisions, protecting its future and maximizing its value.