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Mezzanine debt is a power booster for buyers flexing in a negotiation. The mere existence of mezzanine debt or any form of acquisition unitranche facility brings a level of respect from the sell-side broker and the seller.

Mezzanine debt is rarely seen as a lubricant for execution risk in a leveraged transaction. Often it is viewed negatively as a symbol of “too much debt,” thereby creating more execution risk for the buyer.

Asset purchases are a common deal structure in acquisition financing and bring value to the buyer in several ways. Unlike a stock purchase, where the buyer gets the entirety of the Company’s assets and liabilities, an asset purchase is a more targeted, almost surgical approach to acquisition financing.

Acquisition financing lenders rely heavily on cash flow stability in their underwriting approach. Providers of acquisition financing capital assume that historical performance is reflective of future levels of cash flow.

The distressed company buyer tends to be overconfident as to their plan and underprepared as to their acquisition financing. There are many hidden costs within a distressed company that need capital which adds to the purchase price.