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Change is a constant in the world of finance and there’s certainly a clear shift in funding trends in 2025.
As we had just come out of a period of rapid interest rate growth in 2024, we saw extensive refinancing as companies sought to improve their debt terms and enhance their bottom line.
Since interest rates cuts started in June 2024, we’re seeing more acquisition interest and activity, more reorganisations, continued repricing and more shareholder exits.
While companies often seek funding for capital expenditure or working capital, we’re focusing below on funding for merger and acquisition (M&A) activity. The debt market and funding landscape is complex and expert debt advice is needed to find the right funding partners and financing instruments.
The first consideration in acquisitions must be strategic – how would acquiring this business serve your five-year business plan? It’s generally only worthwhile considering an acquisition if it will be strategically valuable.
When companies have acquisition targets, we often find they have worked to understand the strategic value, but they have not necessarily thought through what capital structures they should have in place to make one or more acquisitions happen.
The right funding for your M&A growth strategy depends on all sorts of factors such as your recent business performance, growth trajectory and debt capacity, along with the sector(s) in which you operate, your deal timeframe and more. Depending on your specific needs, you might access finance from pillar banks, credit funds, private funders or others.
Before deciding on the appropriate funding route for an acquisition, we work with clients to understand the proposed deal. This includes understanding the profitability and value of target businesses, while also analysing our client’s business.
By looking at the underlying performance of both the target and the potential acquirer, we seek to create a base financial model and take a view on the appropriate debt products.
It’s useful to understand that when it comes to evaluating your debt capacity, different banks and credit funds have varying appetites for risk. They’ll examine your debt capacity, the sector you’re in, and how strong and predictable your cash flows are. Bringing in expert advisors can help you understand the debt appetite levels of banks or credit funds when it comes to lending to you.
A traditional pillar bank tends to be the first port of call for many businesses seeking credit, but these banks may be constrained in terms of how much they can or want to lend in different circumstances.
They may have more of an appetite to lend for a healthcare asset with property behind it, for example, so will go higher on the leverage size. On the other hand, it will have a lower appetite to lend to an asset-light business not generating as much cashflow.
Credit funds typically have a higher risk appetite and can usually provide higher leverage. While that funding comes at a higher price, it will be structured in such a way that still ensures sufficient debt service capacity and that will lead to likely refinancing options at the end of the loan term.
Before a client commits to any borrowing, we review the financials to make sure the preferred path is not going to put too much stress on their business. This includes a clear understanding of repayment terms. For example, will the proposed debt need to be repaid on a quarterly basis and does trading seasonality in certain quarters affect the business making repayments?
The true extent of the debt market in Ireland is larger than many might realise. As the complexity of demand from the market has increased, the providers of capital have become more diverse and the lending market has become more competitive, with international lenders keen to play an active role in the Irish market. (It’s worth noting our Grant Thornton international colleagues see similar trends in their markets.)
It’s easy for most people in business to rattle off the main Irish banks and perhaps some other well-known debt funders or providers of capital. In fact, there are upwards of 60 lenders operating in the Irish market.
These lenders tend to like Ireland, given our macroeconomic story and other well-known factors such as being an English-speaking country and having common or similar debt products and approaches to loan documentation as the UK and US.
If the price of the acquisition is beyond what the debt market will serve, you can then look to equity solutions to fund your expansion. Private equity firms have a specific exit date, whereas private or individual investors tends to be patient.
It’s also possible to combine funding options. For example, if a company is acquiring a target for €20m, we may raise €5m in private equity, €15m in debt funding, depending on factors such as the company’s existing debt and its repayment capacity.
Every M&A funding arrangement is unique. Regardless of the deal specifics, when there is a strategic capital need, our job is to structure the funding solution for our client and enable them to go on to complete the deal.
Irrespective of an event like an acquisition, it’s smart to review the funding structures you have in place annually or at least every two years. It’s important to do these regular checks to makes sure you’re getting the best value available on the market, paying the right price on your debt and have the best terms for your business needs.
If you have €1m in debt and can shift the terms in your favour, you could see a net benefit to your company of thousands of euro.
Our Debt Advisory team advises corporate clients on local and global debt capital markets products. We give trusted expert advice and help source, negotiate and structure debt.
Our expertise spans facilities, debt capital markets, alternative lenders, leveraged finance, asset-based lending, real estate finance, structured finance, non-profits and charities and company-side restructuring finance. We work closely with Grant Thornton’s Deal Advisory team and leverage our firm’s global debt advisory network to deliver comprehensive support.
We have supported clients across a range of industries, including hospitality, healthcare. logistics and real estate, to name but a few. Notable clients include GSLS, St. Vincent’s Private Hospital, Moran’s Seabren developments and The Address Collective hotel group.
Grant Thornton Ireland ranked #1 Deal Advisor for 2024 by Experian and PitchBook league tables. To find out more about how Grant Thornton can support your business, talk to our Debt Advisory team.
