Explore the complex world of M&A financing, including primary sources such as equity financing, debt financing, and the utilization of existing cash reserves.
M&A financing is the process of raising money to fund mergers and acquisitions. The primary sources of M&A financing are equity financing and debt financing. Companies may also use their existing cash reserves.
The primary sources of M&A financing are:
- Equity financing
Equity financing, in the context of M&A financing, can mean two things: 1) The company selling its equity to raise cash to fund the deal, and 2) A stock swap or the company using equity as a currency (instead of cash) to acquire the shares of the target company. A stock swap or the exchange of one company’s equity for another helps the acquirer preserve cash.
- Debt financing
For startups and less mature companies, debt financing is harder to obtain when compared to equity financing. However, in times of low-interest rates, it is a comparatively cheaper source of funding.
- A mix of equity and debt financing (most common)
- Companies may also use their existing cash reserves
