There is often some debate about when to involve banks in the transaction process; there can be significant variation in this. Some equity investors are confident in the approach and requirements of lenders, particularly when an established model or process is being followed. These investors may be comfortable with advancing a transaction themselves and bringing in lenders close to the time the funding is required or even after the transaction is closed. Typically, either of these approaches may be observed when the transaction is being made in a developed market, sector, or region, where there are benign or stable banking conditions and strong interest in the opportunity is anticipated from lenders.
In most other circumstances, equity investors will probably want to involve banks much earlier in the process to ensure that they negotiate a transaction to which the banks will lend.
It is notable that, in the current financial environment, some transactions are progressing as equity-only transactions because debt is either unavailable or too expensive to obtain. In these circumstances, equity investors anticipate a future improvement in the financial markets and will look to arrange the bank debt when that occurs. An interesting development in this approach is the Chicago Parking Meter acquisition, where the Morgan Stanley-led consortium put in place a long-term forward-starting interest rate swap. This was based on a notional amount of debt despite there being no debt in place at the time of the transaction.2 This approach means that the transaction can proceed even during turbulent times for financing, but it is not a risk-free approach.
The public-sector party involved in a transaction may be concerned about the timing of bank involvement. This is especially true in an underdeveloped market or when there is something novel or unusual in the proposition as the public sector wants to keep transaction cost to a minimum.