How Do You Fund a Management Buyout or Business Acquisition?
Build the funding structure around maintainable cash flow, available assets and the transaction terms.
Most transactions use more than one source
An acquisition or management buyout is rarely funded by finding one lender willing to advance the entire purchase price. A workable structure may combine buyer equity, cash-flow lending, invoice finance, asset finance, property-backed borrowing and deferred consideration.
The funding building blocks
| Source | Potential role |
|---|---|
| Buyer or management equity | Demonstrates commitment and reduces external leverage. |
| Cash-flow loan | Supports consideration where maintainable earnings and debt service are strong enough. |
| Invoice finance | Releases working capital from eligible receivables at completion or after acquisition. |
| Asset or property finance | Raises funding against identifiable assets without loading the whole requirement onto cash flow. |
| Deferred consideration or vendor loan | Bridges valuation and funding gaps while aligning part of the price with future performance. |
| Earn-out | Makes part of the consideration conditional on agreed post-completion results. |
What lenders will want to understand
- The strategic rationale and why the buyer is credible.
- Historic and current trading of the target and buyer.
- Maintainable EBITDA and the proposed adjustments.
- The purchase price bridge and complete sources-and-uses schedule.
- Working-capital needs immediately after completion.
- Existing and proposed security.
- Integration risks, management responsibilities and downside plan.
Worked structure
Assume a £3 million acquisition. A possible structure might include £600,000 buyer equity, £1.2 million cash-flow lending, £500,000 raised against receivables and assets, and £700,000 deferred consideration. This is an illustration, not a lending formula. Each component must be supported by the underlying business and transaction.
The key question is whether the combined business can fund working capital, investment, tax and debt service after completion, not simply whether the purchase price can be assembled.
Accountant priorities
- Test the quality and sustainability of earnings adjustments.
- Build an integrated post-completion forecast, not separate historic views.
- Model debt service under sensible downside assumptions.
- Allow for professional fees, tax, capex and integration costs.
- Check whether new security conflicts with existing lender arrangements.
- Make the working-capital position at completion explicit.
Shadowfax view
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Use the figures as an initial indication, then discuss the client's circumstances before relying on a particular funding route.
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This guide is for general information only. Funding availability and terms depend on the circumstances of the applicant, the facility and the lender's assessment. Shadowfax Funding Solutions Limited is authorised and regulated by the Financial Conduct Authority under Firm Reference Number 937211 and is a member of the NACFB under membership number 28659.