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Mergers and acquisitions in Bulgaria

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MERGERS & ACQUISITIONS in BULGARIA

Financing the Deal

When planning an acquisition of a company, managers usually concentrate on the following three dimensions: possibility-What financing can we obtain?; then the focus is moved to feasibility: Who can provide this financing?; and finally they should consider a third dimension: How should we structure the financing?

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When planning an acquisition of a company, managers usually concentrate on the following three dimensions: possibility-What financing can we obtain?; then the focus is moved to feasibility: Who can provide this financing?; and finally they should consider a third dimension: How should we structure the financing? .
A business can receive financing from both external or internal sources. Internal financing is money generated from the sale of goods/services and the additional funds received from loaning or investing own funds elsewhere. Internal financing has many advantages over external financing-less tax burden, requires less monitoring by financial sources-however, it’s not always available or sufficient.
The other type of financing- and the scope of our presentation- is external: the money obtained from outside sources. External financing plays an important role in M&A transactions where investment requirements are usually very high.
Key Players in providing external financing are:
1.Commercial banks-through their Investment Departments; or/and as a depository institutions; or/and through their Corporate banking Departments
2. Investment banks-via their investment divisions sometimes combined with stock-brokerage departments or firms
3. Investment companies/funds (generally backing buyouts)
4. Private buyout investment firms
5. Venture capital firms
6. Insurance companies and pension funds-as institutional investors

We can generally divide the external financing into three broad categories: debt, equity and hybrid financing.

DEBT FINANCING
It covers a wide range of instruments:
1. Bank loans
• syndicated loan- a loan offered by a group of lenders (a syndicate) who work together to provide funds for a single borrower. Typically there is a lead bank or underwriter of the loan, known as the "arranger", "agent", or "lead lender". This lender may be putting up a proportionally bigger share of the loan, or perform duties like dispersing cash flows amongst the other syndicate members and administrative tasks. The main goal of syndicated lending is to spread the risk of a borrower default across multiple lenders (such as banks) or institutional investors like pensions funds and hedge funds. Because syndicated loans tend to be much larger than standard bank loans, the risk of even one borrower defaulting could cripple a single lender. Syndicated loans are predominantly used in the leveraged buyout community to fund large corporate takeovers with primarily debt funding. Syndicated loans can be made on a "best efforts" basis- if enough investors can't be found, the amount the borrower receives will be lower than originally anticipated. These loans can also be split into dual tranches for banks (who fund standard revolvers or lines of credit) and institutional investors (who fund fixed-rate term loans).
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