“Lessons learned from $35m of debt raised”
1. Do not take too much debt. How much is too much will depend greatly on the multiple you are paying for your acquisition. Higher multiple paid gives less room for a lot of leverage. We pay around 5x and stick to 30% equity and 70% debt.
2. Focus on default covenants. If possible, tie interest payments to EBITDA levels. If you do not have the EBITDA to cover the payment, is accumulates to the next period. But you do not default.
3. Focus on repayment covenants. Same as #2, try to tie repayment as a percentage of EBITDA. If you can do this, you will remove pressure if you have a downswing in the business.
4. Ask for interest only periods of 1-3 years. The initial phase post-acquisition is the toughest. Paying only interest during this time allows you to get a handle on the company.
5. Ask for prepayment without penalty. You should look to pay down debt as soon as you can and you do not want to penalized for doing so.
6. Get creative. To secure some or all of the points above you may need to get creative. Attaching some form of convertible to the debt where the lender can acquire equity in the business is a great sweetener.