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When financing an acquisition in Malta, buyers must structure their funding strategically to optimise returns while maintaining healthy cash flows. In addition to equity, several financing options are available depending on deal structure and security:
1. Loans from local banks
Local banks remain a primary source of financing, but they traditionally require collateral, such as property, to secure loans. Cash flow-based lending without property security is not yet the norm but is gradually evolving. Banks will consider the financial strength of the borrower/acquirer when providing unsecured cash flow lending.
2. Bonds on the Local Market
If the acquisition generates strong cash flows, issuing bonds on the local market can be a viable financing option. Acquirers may also leverage their existing businesses to issue bonds for funding new acquisitions. This method is attractive as it typically functions as a bullet loan with repayment due after a set period, usually 10 years, while interest is paid annually. This structure preserves cash flows for other investments throughout the term.
3. Foreign financiers
For acquisitions exceeding €15 million, foreign banks or private credit funds offer an alternative to local financing. These lenders typically can provide a mix of amortising loans and bullet loans. While such financing arrangements tend to be more expensive, they allow for greater leverage and flexibility due to a higher risk appetite compared to local banks.
4. Share-for-Share Transactions
Part of the acquisition consideration can be settled by issuing new shares in the acquiring company to the seller. This structure is typically used when the acquirer is a listed company, allowing the seller to remain a passive investor, earn dividends, and retain the option to sell their shares at any time. This approach reduces the acquirer's debt burden and mitigates financial risk
5. Deferred payments and Earn-Outs
Deferred payments offer a flexible financing option, allowing a portion of the acquisition price to be paid over time, often secured by instruments such as bank guarantees. Additionally, an earn-out mechanism can be used, tying part of the payment to the business’s post-acquisition performance. Typically lasting 1-3 years, earn-outs help the acquirer mitigate risk while enabling the seller to benefit from the company's medium-term growth
A well-structured acquisition financing plan often combines these methods to balance risk, optimise returns, and ensure sustainable cashflow management. Buyers should tailor their financing strategy to each deal’s unique characteristics. At Hatten M&A Advisory, our network of seasoned professionals can help structure the optimal financing plan for your acquisition.
