Buy-Side
In a mergers and acquisitions (M&A) context, a buy-side deal refers to the process where a company, known as the acquirer, is seeking to acquire another company (the target). The “buy-side” encompasses the acquiring company and the various professionals and advisors assisting them in the acquisition. These professionals may include investment banks, M&A advisors, and legal teams.
Here’s a breakdown:
Buy-side:
The side of the transaction focused on the acquisition process, representing the interests of the acquiring company.
Sell-side:
The side of the transaction focused on the sale process, representing the interests of the company being acquired.
Key Activities:
The buy-side focuses on financial analysis, valuation, due diligence, negotiation, and ultimately, the successful closing of the acquisition.
Goal:
The primary goal of the buy-side is to acquire the target company on favorable terms, achieving the acquirer’s strategic and financial objectives.
Examples:
Buy-side entities include private equity firms, hedge funds, and companies actively seeking strategic acquisitions
Non-recourse Loans for M&A or Growth Capital
| Type Of Loan: | Non-recourse, 100% LTC, Project or Portfolio financing. Similar structure to a line of credit with disbursements, but not a revolving line — borrow then repay. Once repaid, further borrowing would require a new loan request. Also good for acquisitions and refinancings as well as growth capital. |
| Length Of Loan: | Flexible terms but the standard is 10 years with a 2-3 year grace period for development projects. It can be longer (up to 20 years) if the project warrants it. |
| Prepayment Penalty: | None |
| Initial Costs: | No upfront or due diligence/LOI fees |
| Minimum: | $25 million minimum per loan; prefer $50mm-$1B |
| Interest Rate: | 5’s-6’s% fixed annual interest (APR). Lower rates with a minimal profit share. All rates are subject to change and based on quotation at the time of application. |
| Timing To Funding: | Close and initial funding in under 2 months, then Borrower receives 100% of the loan amount (5x the 20% deposit), not 80%. Funding is ordinarily delivered in 2 or more tranches, but if the borrower prefers lump sum distribution (full amount of loan proceeds in a single draw) this is available at a slightly higher rate of interest — likely in the 7’s% APR. |
| To Qualify: | venture or M&A transaction must have reasonably low risk; The client needs to provide a 20% security deposit at closing and the lender will 5X that. Collateral can be cash, US Treasuries, TIF notes, or various rated bonds. May also be able to use Tax Credits in certain circumstances. To check if non-cash options will be accepted, please send us a sample (“specimen”) or draft of the proposed collateral for review. Suppose the 20% deposit is in the form of cash. In that case, the deposit is effectively returned when the loan is funded (plus the additional funds become available in the number of tranches agreed to). Otherwise, if 20% is securities, treasuries, bonds, or tax credits, the deposit sits and is released upon loan repayment in full, which can be either from operating cash flow or from subsequent refinancing. |
Intake steps:
- NDNCA; fee agreement
- Executive Summary – A lengthy business plan or offering memorandum, presentation, etc. is fine but I also need a simple 1-pager that captures just the essential facts of what, where, how much, etc.
- Budget and Proforma in Excel
- Proof of Funds/Asset for the 20% (we need to be able to authenticate the value)
- Summary Application (specific to this lender, will provide the package of forms after screening)
- Preliminary “tranche” draw schedule
- Management/Sponsor bios.
Promissory Notes As Guarantees
Sell Side
A sell-side M&A (Mergers and Acquisitions) deal is when a company or its assets are being sold to another company or investor. In this type of transaction, the selling company, referred to as the target company, is actively seeking a buyer.
Buy-Side M&A Process Explained: A Step-by-Step Guide …
Here’s a more detailed explanation:
Target Company:
The company that is being sold or merged is known as the target company.
Buyer/Acquirer:
The entity purchasing the target company or its assets is the buyer or acquirer.
Sell-Side Advisor:
The company selling its business engages an investment bank or advisory firm to help them navigate the sale process. This advisor’s role includes preparing marketing materials, identifying potential buyers, negotiating offers, and managing the overall transaction.
Goal:
The primary goal for the seller in a sell-side M&A deal is to maximize the sale price and secure favorable terms for the transaction.
Bank-endorsed Promissory Note delivers certain advantages to well-qualified project developers and sponsors
Although rarely used, the main advantage of using our Avalized commercial Promissory Note is that it is a simple, 1-page, company-issued guarantees.
- Clean start: Some bankers get confused by the versatility (and occasional fraudulence) of the BG or SbLC, as they are often used for commodity trade finance transactions, but function quite differently from a guarantee used for Capital Completion project finance security. Further, AvPNs are bank endorsed guarantees, unlike the widely used Standby Letter of Credit, which is a bank-issued guarantee, similar to a Bank Guarantee. Bankers are often reluctant to issue their guarantee for a variety of reasons (mainly, not wanting to make a costly mistake), especially at first glance, while for those that understand what it means under the ICC rules also referred as URDG 758, an Aval will have none of that baggage.
But that said, an “Aval” is not widely understood. It is usually only bankers outside of North America, so be sure to ask if your bank can provide one. International banks are thus the better choice. - No SWIFT fee for the AvPN instrument may save 0.25%-3% of the face value. Finance-related fees are reimbursed from initial draw(s) of project funding, but that still usually requires some party — typically the project’s developer, sponsor or other stakeholder — to cover or “bridge” the fee until 30-45 days after closing, the typical timeframe to first draw. In some cases, we can make these arrangements after all else is confirmed.
But generally, if the party asking for the Aval is creditworthy in the eyes of the bank, the AvPN will cost less than a Standby Letter of Credit or Bank Guarantee to qualifying customers. The rationale here is that a company-issued commercial
Promissory Note relies on the credit rating of the company offering the guarantee, or on their balance sheet and operating history (which would usually require financial statements or other evidence the bank will accept), and overall standing with the bank.
Banks usually require separate collateral for a Bank’s SbLC, Performance Guarantee, or Payment Guarantee, but the bank that provides the Aval may or may not ask for collateral, given their secondary guarantor role. It just depends. You would need to ask so the involved banker can make this judgement call.
There is one significant trade-off, however: a Promissory Note with a bank’s “Aval” or stamp is less often used by bankers compared to Standby Letter of Credits. If you are certain your bank can provide the Aval, the above points to the next conversation: whether the party requesting it is creditworthy in their eyes.
Most banks do not charge customers for an Aval; some charge a nominal service fee (similar to a notary or other services) or for the confirmation letter we ask that they send via SWIFT. This is because the bank is not taking primary responsibility for the guarantee and has reason to believe the issuer will not default. The Promissory Note issuer is usually a private company, as well as the bank’s customer, while the bank takes secondary responsibility by stamping the Promissory Note hardcopy “per Aval”. This confirms that the issuer of the PN is in good standing with the bank and reasonably creditworthy.
If that is not the case, the bank will either not agree to provide the aval at all, or would request some form of collateral. If the banks seeks a higher fee, ask them why. Compare that to a SbLC SWIFT fee (MT799 and MT760 plus hardcopy), or ask a different bank with equal or better credit rating, and go with the instrument that’s least expensive.
Part of the reason this instrument is not well understood by bankers is that it is a private company-issued guarantee (sometimes called a corporate warranty, in the form of a commercial Promissory Note), NOT from the bank. There is no SWIFT message to transmit the instrument, so they cannot charge a SWIFT fee for that — the instrument is physically stamped and then sent via hardcopy only, with SWIFT used only to confirm or otherwise correspond on a bank-to-bank basis.
Procedure: Once the PN language is fleshed out (as an unsigned “specimen” is fine), a letter from the bank’s officer expresses the bank’s intent, which will be followed by an Authorization to Verify (ATV) letter and our financial due diligence. If all goes well, a binding offer and contract will be arranged for the proposed funding. Only then does the bank need to provide the Aval, sending the finalized AvPN hardcopy via courier, the last step before closing.
To be clear, although usually less expensive, with none of the baggage of a BGor SbLC, avalizing a Promissory Note does not make the issuer more creditworthy. The aval does not enhance the issuer’s credit. Still, Family Office banks will accept this instrument once the developer project/portfolio is otherwise pre-qualified for our fast and advantageous funding.
PNs with an Aval and SbLCs can both use Uniform Rules for Demand Guarantees (URDG), ICC pub 758. There are other similarities as well. Compare both types of instruments below, or also compare with Sovereign Guarantees with decision-making support.
What reassures the bank we will not call the AvPN? Making any claims against the instrument (drawing on or calling the AvPN) remains the absolute last resort. We have never called a guarantee in all of our history and do not intend to start now. Doing so would be a sharply negative reflection upon everyone involved … would end up in the courts. It must not happen, and in practice, there would be no reason to call it. We find alternative solutions.
To recap, the essential requirement is that the involved bank offers Avals and that the PN issuer asking for the Aval must be a valid customer of the bank usually with long-established banking relations. To be blunt about it, if the issuing party is used to being supported by their bank in multi-million-dollar transactions, that can help leverage project financing with an AvPN or SbLC for the current and future transactions. The difference with CAP is that we only seek completion assurance — the guarantee is allowed to expire once the project reaches Commercial Operation Date.
Note: Be careful not to pivot too soon to an AvPN without giving adequate attention to the cash deposit, SbLC, SG, or direct deposit of securities (either ISIN-registered and rated bond, MTNs, gold with SKR, or public equities) options. Why? The grass always seems greener … some banks will not know precisely what you are asking (even if they pretend to) or will simply say “no” to an AvPN, at first, to avoid having to think, or in hopes of saving both parties frustration.
Do not accept the first no; instead gain precise facts (not interpretations), and inform yourself of why they are objecting, even if they won’t tell you directly at first. Persistence often pays off.
But if the PN issuer is not known to be sufficiently creditworthy, the bankers will assume a default event is possible that would leave them hanging. The reasons mentioned above sometimes affect banker cooperation even when the PN issuer is reasonably creditworthy. This undertaking is more secure than many bankers realize. Staying in this conversation, showing poised, calm and persistent assertiveness (pushing too hard can appear to them as desperation, even if it is entirely born of confidence) will tend to win management support, even if the first “no” is simply a knee-jerk reaction.
Once the bank agrees to this, requests for subsequent projects go much more smoothly.