Can I use a target's assets as security for acquisition finance?
Short Answer
Often yes. Lenders commonly secure acquisition finance on the target's assets and cash flows, including receivables, stock and plant, and increasingly on intangible assets such as patents, software and brands through IP-backed lending.
Full Explanation
Using the target's own assets to help fund its acquisition is a normal part of deal financing, and it is one reason your upfront cash can be less than the price. Lenders assess two things: the cash flow available to service the debt, and the assets available as security. Traditional security includes receivables, stock, plant and property through asset-based lending, and a general charge over the business in senior debt. Increasingly, and further developed in the UK than in most markets, lenders will also lend against intangible assets — patents, software, brands and data — through IP-backed lending. That matters because most of a modern business's value is intangible, so a target with well-documented, valuable intangible assets can support more borrowing. Structure affects what security is available: an asset purchase can give a lender cleaner security over specific assets, while a share purchase preserves contracts that a change of control might otherwise disturb. Documenting the target's intangible assets clearly, before you approach lenders, widens your options. See [how to finance a business acquisition](/insights/how-to-finance-a-business-acquisition) and [IP-backed lending](/ip-lending).
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