Comment by phkahler
3 hours ago
>> a structure where 50 to 90 percent of the purchase price is financed by debt, and that debt is loaded onto the balance sheet of the acquired company, not the firm making the acquisition.
This just seems wrong. The buyer takes out a loan, how does that become the responsibility of the company they purchased? I thought loans used to buy a business treated the business as collateral, like a home mortgage. What lender would participate in this? and why?
> The buyer takes out a loan, how does that become the responsibility of the company they purchased?
Because the company they purchased is now a part of them.
As for why a lender would agree to it, it's because these transactions are not as simplistic or universally disastrous as they are usually described. A lender will obviously only make that loan if it has a reasonable expectation of being paid back, and most of them are. They may get additional collateral like parent/affiliate guarantees and the loans will have covenants relating to financial performance etc.