Question

What would happen if you finance an acquisition with a mix of debt and equity

What would happen if you finance an acquisition with a mix of debt and equity

Homework Answers

Answer #1

Leveraged buyout form of acquisition is unique mix of equity and debt financing which is used to acquire target company

If an acquisition is financed with both debt and equity it means that the aquirer company will have less dissolution of its equity share capital and more debt financing for the target company because it will mean the acquired company need to have a higher cash flows in its books to finance the interest cost.

it will also add on to the solvent risk as well as Liquidity risk of the acquired company and it will mean higher outflow of cash so that aquirer company need to have an adequate mix of debt and equity capital or complete equity while acquisition of another company

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