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The risk-reward equation in M&A financing is a delicate balance, where potential pitfalls and gains play a pivotal role in shaping the merged entity’s future. This blog post delves into the intricacies of different financing models, shedding light on the associated risks and rewards.
Cost of Debt (Rd): The cost of debt refers to the effective interest rate that a company pays on its debt, such as bonds, loans, or other forms of borrowing. It represents the cost a company incurs to access funds through debtfinancing. It is often referred to as the “marketrisk premium.”
Debtfinancing is much more common, and the GE firm is often the first institutional investor. The main risk factor in deals is executing the growth plan, not default risk due to debt (PE) or product/marketrisk (VC). based firms.
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