finance the acquisition 100% with debt
Why can't we finance the acquisition 100% with debt? Would that be possible in practice? Theoretically, the debt would then be equity?
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Sure - it’s theoretically possible and practically possible in some small real estate. Why do you think the debt would be equity though? Debt vs equity have very different legal rights. And from who’s perspective - the target or the acquirer? If using all debt and financing, the target receives the sale price in cash (no equity shares given to them). From the acquirers perspective, even if using all debt the acquisition, the specifics of the targets balance sheet will determine how much the acquirer’s equity on its own balance sheet changes.
Assuming this is an LBO context - theoretically yes, anything is possible as long as folks agree to it.
In reality, no investors will provide that debt if they see that there is no equity behind them (i.e. no equity cushion, which implies that Sponsor has no skin in the game).
HA.... oh wait you're serious?
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