Australian companies can now pay for their acquisitions by deferring the full asking price and instead laying down a deposit.
Rather than pay the up front price in full, companies can instead choose to put down a part payment at the time of the deal, followed by the balance later.
According to Jim Lowrie, the managing director of Deferred Finance Australia (DFA), an equity gap is created during many mergers and acquisitions deals, which companies can avoid by deferring their payments.
"Companies are looking for flexibility and options to suit both the purchaser and the vendor. They often want to avoid taking on mezzanine debt or unknown private equity, and deferred finance can be mutually beneficial for both parties," he said.
Lowrie added that the subsequent payments were then insured by DFA through Deferred Consideration Insurance.
"Deferred consideration insurance is the insurance market equivalent of a cash-backed bank guarantee and removes the risk of non-payment from these transactions," he said.
"Another advantage is that the vendor avoids having to become involved in any messy legal or collection process for the deferred consideration in the event that the purchaser defaults."
Deferred Finance was established in the United Kingdom in 2006
