Financing AcquisitionsArticle byDheeraj Vaidya, CFA, FRM
Financing an acquisition is the process in which a company that plans to buy another company tries to get funding via debt, equity, preferred equity or one of the many alternative methods available. It is a complex task and requires sound planning. What makes it complex is the fact that unlike other purchases, the financing structure of M&A can have plenty of permutations and combinations.
How to Finance a Business Acquisition?
There are many ways in which you can finance business acquisition. Popular methodologies are listed below.
- #1 – Cash transaction
- #2 – Stock Swaps
- #3 – Debt financing
- #4 – Mezzanine Debt/ Quasi Debt
- #5 – Equity investment
- #6 – Vendor Take-Back Loan (VTB) or seller’s financing
- #7 – Leveraged Buyout: A unique mix of debt and equity
Please note in large acquisitions, financing business acquisition can be a combination of two or more methods.