What's fund flow in the context of M&A?
What's fund flow in the context of M&A? Can someone explain what that does and what's that for? PE is asking me about it and I have no one on the team that understands what that is lol.
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it's like...where the funds flow. like to who and how much
I know I sound like I'm being a smartass, but that's literally what it is
To extrapolate - it is a document that states what dollars are being paid to which bank accounts at the time of transaction close (payoff lenders, pay advisors, fund selling shareholders, etc.).
I would be shocked if there is not a template floating around your institution that has a ready-made S&U that you can plug in from your transaction to get the document up and running.
It’s how all the payments move about on closing day for the transaction - how much exactly to what entity etc
yes
Who's typically doing that? Sounds like a back-office function? I have put together sources/uses table before, but no one on my team has heard of a fund flow lol.
Flow of funds memorandum are seen more often in cap raise transactions due to higher deal counts. Correct that it's mostly operations work especially for public offerings. Collecting invoices, wiring info, cross receipts, coordinating w/ transfer agent etc. Smaller shops may have ECM/syndicate handle it. Usually process/drafting of an FoF is driven by counsel, including M&A. Inputs from bankers usually limited to arguing over fee splits or last minute changes to fee economics.
It details the amount and type of consideration that goes to each shareholder of the selling co. Two main purposes:
1) On the admin side, whoever is wiring funds needs to know precisely who to wire in what amounts.
2) On the business side, it's typically not as simple as an all cash transaction in which the selling shareholders only own common stock with no dilutive securities such that you just wire everyone a flat cash amount based on outstanding common stock. A big part of the funds flow exercise is determining the fully diluted ownership of each shareholder, which depending on stock options, warrants, etc. could be quite different than non-diluted ownership. As such, you'll need to flesh out for management & the seller who is actually getting what and the breakout between Options, Stock and Cash that the selling shareholders get at a certain deal price. This can get quite complicated if there are a ton of different securities with nuanced liquidation preferences, minimum multiples and/or performance based vesting that varies with liquidation price and multiple achieved.
So it is both an admin logistical and a financial analytical exercise. I think at bigger firms MO / BO people might do this part.
Man your team must not close many deals lol. I can’t offer any more guidance than what youve already received
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