What are the common sources of debt in acquisitions?

In the context of acquisitions, common sources of debt typically include bank debt and high-yield debt. Bank debt refers to loans provided by banks that may take various forms, such as term loans or revolving credit facilities. These loans are often secured by the assets of the acquiring company and typically come with interest rates that reflect the borrower's creditworthiness and the overall economic environment.

High-yield debt, often referred to as "junk" bonds, involves borrowing through bonds that offer higher interest rates due to their lower credit ratings compared to investment-grade debt. This type of financing is popular in acquisitions, particularly when companies are looking to finance large takeovers or when traditional financing sources might be constrained.

Utilizing these forms of debt in acquisitions allows companies to leverage their capital structure, potentially leading to higher returns on equity, as they can invest in growth opportunities without needing substantial upfront equity financing. The combination of these debt sources offers flexibility and accessibility for companies pursuing acquisition strategies.