Fis Offer M & A Funding Devices

Financial institutions are warming to the idea of funding take-overs, mergers and acquisitions. They are willing to offer structured finance to fund these take-overs, top institutional sources said.

The concept of structured financing, which gained popularity in the last few years, was being considered for M&A financing also following requests from clients, institutional sources said.

They said these financial solutions would be structured as would any structured product offered to the corporate.

Typically, a structured finance product includes components of debt and equity financing, encompassing the entire range of products lying between these modes of financing.

They said clients had asked for finance in the form of equity, bonds, convertible debentures, non-convertible debentures, etc, in various structures and combinations.

 

They said the products would be structured after examining a client's payment requirement and repayment ability, after a through due diligence of the proposed take-over or acquisition.

"We are willing to fund friendly and hostile take-overs," one top level executive at a premier institution said. He said the basic consideration would be whether the synergy benefited all parties concerned, viz., the acquirer company, the target company, and the financial institution.

He said the move must not hurt the institution's exposure to the parties, in the form of equity or debt.

Much of the finance extended as part of take-over financing would be secured against the assets of the company as collateral, he added.

He said financial institutions were mooting the idea of providing take-over financing as a business opportunity following the spate of take-overs, mergers and acquisitions in corporate India over the last year.

Institutions traditionally kept off this area preferring to disburse limited resources as term loans.

Besides, since they had already extended finance to the entities involved, extending of further financing to fund a take-over was a double financing of the same asset, officials said.

But with the environmental changes in the financial sector spurring corporate consolidation and encouraging financial organisations to offer diversified products, this mind-set was slowly changing.