Factoring (Receivables/Inventory) to finance Acquisitions

Have you ever seen factoring as a source of funding to finance a company acquisition? (i.e. selling off the targets existing receivables or inventory to a third party - which pays you cash upfront - to fund the acquisition, with futures receivables or inventory also being sold off to that third party to fund working capital shortfalls as a result of the acquisition structure).

How likely is this and how would you model it? If the balance sheet of target company is big enough it seems easy, along with traditional debt sources, to be able to fund transactions with little to no equity

 
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Factoring usually isn't the best route. It's expensive and cumbersome. I had one client with a factoring line and it was a real problem for them.

If the balance sheet is big enough just use traditional bank financing. If you need more debt, try a seller note or possibly mezzanine. Mezz is usually fairly expensive too.

 

Is it really that expensive? Thought it would just be like 3% discount to eligible receivables base Agreed that factoring is an expensive route compared to traditional sources of financing - but let's say you are already highly leveraged and it works out to be cheaper than other forms of credit fund financing available to you - has anyone modelled this out for transactions?

 

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