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I have a question for word phrase "debt financed" in Acquisitions but for my best understanding, I would like to ask a question on random example: Let's say we have three companies: CompanyA, CompanyB, CompanyC. The CompanyA is in process of acquiring the CompanyB and is considering "debt financed" type of transaction payment to complete the acquisition. CompanyC wants to give the capital to CompanyA so CompanyA can use this exact capital to pay for acquisition. My question is: What sense, if any, would it make for CompanyA to use the capital given by CompanyC? Would it be possible to pay with someone else's capital if transaction is to be "debt financed"? I'm referring to the "help" subject: CompanyC wants to help CompanyA with money.

The reason why I'm asking my question is because of different type of payment for acquisition which is "all-stock" method. Here I understand what does it mean: the payment is done in a form of CompanyA giving some of its own stocks to CompanyB as a payment for acquistion. So any other source of capital makes no sense and it's impossible.

But I'm not sure whether CompanyC's source of capital, being given to CompanyA, would make any sense in case of "debt financed" payment for acquisition? I'm asking what kind of sense, IF ANY, would unexpected source of extra capital (from CompanyC) make in such case? I would appreciate as direct as possible answer please. Thank you!

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  • It would help if you could substantiate some of your claims to help in answering your question. It does seem that you misunderstand how buying a company works. You do not give the company anything, you give it to their owners. If you had a business and that by giving it shares I would own it, you would in fact have received nothing in the deal. Companies may buy other companies by acquiring stocks from their stockholders. This may require lots of liquidities, hence it making it sense to finance the purchase through loans, debt issuance, share issuance, etc. – ApplePie Nov 15 '20 at 2:34
  • "CompanyC wants to give the capital to CompanyA". That will never ever happen, because businesses are not in the business of giving stuff away. – RonJohn Dec 24 '20 at 5:29
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Your question isn't very clear but I'll use your example to explain debt financing. Hopefully it will answer your question. Let's start with the basics. Debt financed transaction means that debt was used to finance it. So, in your example Company C is a bank that provides the necessary capital to Company A to acquire Company B. There's no such thing as "help". They provide the capital that the acquirer either lacks or isn't willing to pay all cash and they get interest payments in return (plus the capital of course). Also, the bank won't give the whole amount by herself. Most probably the bank would syndicate the loan (in other words pool their money with other banks) and also issue bonds for their client. If it answers your question, please mark it appropriately. :)

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