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Debt costs are low because interest payments usually reduce corporate income tax liabilities, while dividend payments are usually not. The reduction in financing costs allows equity to obtain greater benefits, so debt becomes a lever to increase equity returns. [1] When a financial sponsor acquires a company, it usually uses the term “ leverage to acquire ”. However, part of the funds traded by many companies comes from bank debt, so it actually represents leveraged acquisitions.

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Leverage acquisitions can take many new data   different forms, such as management acquisitions (MBO), management acquisitions (MBI), secondary acquisitions and tertiary acquisitions, etc., and can be in growth, reorganization and bankruptcy. Occurred. Leverage acquisitions mainly occur in private companies, but they can also be used in listed companies as (——public-private) in so-called PtP transactions.

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 Because financial sponsors use very high leverage ( or high debt equity ratio ) to increase returns, they are motivated to use as much debt as possible to finance acquisitions. In many cases, this has led to the situation where the company “ is overly leveraged ”, which means that they have not generated  BJB Directory  enough cash flow to repay the debt, which in turn leads to bankruptcy or debt-to-equity swaps, in which the equity owner transfers the enterprise’s Control is transferred to the lender.