Acquisition Financing

Companies use mergers and acquisitions to grow in scale or to enter new markets, but because such deals involve very large sums of capital, they can often be difficult to fund from a company's own resources alone.

Companies therefore raise the necessary funds through a variety of channels, such as bank loans, corporate bond issuances, stock issuances, and capital from private equity funds.

Throughout this process, a strategic funding structure that weighs the financing terms, the risks, and the repayment plan generally proves critical.

Under this method, the acquirer borrows funds from a financial institution, either directly or through a special purpose company (SPC), and uses those funds to acquire the shares of the target company.

The acquirer carries the repayment obligation, and although this structure can ease the upfront capital burden, managing the risk that comes with a higher debt ratio remains important.

Under this method, a strategic investor (SI) contributes capital alongside an external financial investor (FI) to establish an SPC, and the acquisition is carried out with the pooled funds.

The parties set the governance structure through a shareholders' agreement, and the strategic investor generally takes the majority stake while the FI participates as a minority shareholder.

Its hallmarks are a stable capital structure and shared responsibility among the investors.

This is the structure used most often in practice, and it blends the borrowing approach with the equity approach.

The strategic investor and the FI contribute funds jointly, and the SPC borrows additional funds from a syndicate of lenders.

Under this structure, the acquirer raises funds from a financial institution by pledging the assets of the target company as collateral, then uses those funds to complete the acquisition.

Asset utilization can be highly efficient, but because the target company's assets serve as collateral, a breach of trust issue may arise, so the legal legitimacy of the arrangement should be reviewed in advance.

The central task in acquisition financing is to build a sound funding structure that balances cost, risk, and long-term financial health.

A strategic approach generally calls for analyzing the size and characteristics of the transaction, market interest rates, and the broader financial environment.

Successful acquisition financing generally depends on clearly defining the financial structure once the acquisition closes, and on preparing a methodical debt repayment plan along with measures to strengthen the capital structure.

These steps directly affect the company's sustainability and financial stability.

Throughout the acquisition financing process, careful legal, accounting, and tax review and advice carry considerable weight.

Working with experienced advisors in each field to identify risks early and prepare suitable responses can improve both the stability of the transaction and its likelihood of success.

In the first half of 2025, the weight of interest rates and the mix of domestic and external uncertainties caused new acquisition deals to contract, and refinancing and recapitalization transactions led the market.

As the prospect of interest rate cuts grew, demand for refinancing rose, and major financial institutions concentrated on arranging existing deals on a stable basis.

Even so, the complexity of deal structures and sharper competition kept overall profitability at a limited level.

In the second half of 2025, as final bids for the sale of major companies get underway, demand for acquisition financing is expected to expand noticeably.

With the policy direction now somewhat clearer, both companies and investors are easing their conservative stance, which can raise the likelihood that acquisition deals are completed.

As competitive bidding between strategic investors (SI) and financial investors (FI) widens, arrangement competition among financial institutions is also likely to grow more intense.

When designing an acquisition financing structure, the funding strategy should remain flexible enough to adjust to external variables such as the size of the transaction, the financial condition of the target, and the level of interest rates.

Beyond the maturity structure of the borrowing, the repayment plan, and the interest rate terms, an advance review of tax and accounting treatment carries real weight.

Capital efficiency and cash flow stability during the post-closing integration also warrant consideration.