There are a number of ways to structure a deal, whether through equity financing, debt financing, cash or a combination of financing vehicles.
One strategy to consider is equity financing, which involves investors contributing cash to the buyer’s capital in exchange for percentage ownership of the target business. Although equity financing carries an expectation of higher rates of return, it provides flexibility that is not available with debt financing, such as no mandatory interest and principal repayments.
Rollover equity is a method of seller financing, in which a seller contributes, or rolls over, equity from the divested entity into the acquirer. This reduces the buyer’s up-front capital investment and results in certain post-transaction ownership by the seller. This strategy can be particularly attractive to buyers eager to retain a seller’s key management employees after the acquisition.