Financing external growth operations of SMEs/ETIs: which solutions?

Financing External Growth Operations of SMEs/ETIs: What Solutions are Available?

The issue of financing remains a significant challenge for SMEs and SMIs, especially when it comes to financing external growth and company acquisitions.

However, this should not be an obstacle, as in recent years, alongside traditional bank financing, new players have emerged and gained strength, offering alternative or complementary solutions. For instance, crowdfunding platforms provide opportunities for entrepreneurs with development or acquisition projects to connect with investors, whether individuals or legal entities, who have the capacity to finance them.

These platforms, regulated by the Autorité des Marchés Financiers (AMF), offer equity financing or, more commonly, loans with maturities ranging from two to five years. Such loans can supplement partial financing with equity capital and can reach amounts of several million euros.

Venture capital and private equity funds are also attractive options. They can provide equity financing through minority or, in some cases, majority stakes. These funds operate in various forms, such as capital investments, convertible bonds, or subordinated debt (mezzanine debt). Subordinated debt offers the advantage of longer repayment terms compared to bank debt, ensuring it does not burden the company’s operations and liquidity. Such mechanisms are often utilized in leveraged buyout (LBO) operations.

It is worth noting that funds generally have high return on investment expectations, which may not align with all types of companies.

Regardless, before engaging in discussions about acquisition financing, it is advisable to be well-prepared (with an acquisition strategy, business plan, and proficiency in valuation tools) and to seek the assistance of specialists in merger and acquisition consulting.

Olivier Renard
Associate Director