The clear winner is – how much can I borrow, typically in relation to an acquisition.

Providing views of debt capacity is often a one dimensional question. The reason is that you cannot look at debt capacity as an academic exercise – you need to understand the context, especially as part of a change of ownership transaction.

Some of the factors considered by lenders include what is the new cash equity introduced by the buyer, to ensure an alignment of interests, and indeed is there access to further capital which may be required further down the line. Critical issues are the background of the buyer and their relevant sector experience and credibility in successfully acquiring businesses, implementing change to improve performance, and effective management of the business.

Finally, leverage – that is the amount of debt in relation to both the equity portion and the expected earnings. Often people focus on the maximum leverage that is acceptable to the lender, but lets not forget the risk tolerance of the new owner, and how much they want to borrow. They need the flexibility to invest and grow the business, and too much leverage makes this an even more difficult task.

As a respected banker used to tell me when I started funding leveraged buy-outs many years ago – you can’t avoid risk, but you can recognise it and manage it – as true then as it is now.