Credit where cashflow is due

Receivables financing as a tool of acquisition finance is all the rage in Europe - not least because specialist US providers, with expertise in calibrating borrowers' cashflow strength and creditworthiness, have been among those active in financing recent acquisitions and MBOs. This is because receivables financing reduces the need for working capital without affecting a borrower's credit lines, so it is a useful source of additional liquidity.

"Asset-based financing as an adjunct to conventional acquisition finance is not new in the context of acquisitions and leveraged buy-outs," says Andrew McLean, a partner at Nabarro Nathanson who specializes in structured finance. "What is new is the ascendancy of receivables financing to the point where the entire transaction could be financed on the back of the target's debtor book."

Traditionally, receivables financing - especially in the form of factoring - has been seen as a mundane commercial banking activity. But sophisticated forms carry...