Debt vs Equity in Mergers and Acquisitions

Merger and acquisition (M&A) activity is expected to surge over the coming year. According to a recent report by Deloitte, the number of middle market business executives who consider their companies “very likely” to engage in an acquisition jumped from 11% to 18%. This is supported by a survey by Merrill DataSite (see bar chart below). As many as 86% of respondents definitely plan to expand through some combination of internal growth and/or acquisitions in the coming year.

Source: Merrill DataSite

What is Driving Acquisition Activity?

Several factors are driving the increase in M&A activity—including a push to bolster corporate revenue, coupled with the buying power of stronger corporate balance sheets. According to Merrill DataSite, 32% of respondents said the major objective of their company’s future acquisition strategy will be to increase market share in an existing market or product.

When is Debt Preferable to Equity for a Business?

Last year, The New York Times reported how some entrepreneurs manage to make million, if not billions, more than others by being careful not to sell too much of their business too soon. This principle is especially pertinent for companies considering a merger or acquisition. If you are a business owner, debt financing may be preferable to equity if you:

  • Do not want to substantially dilute your ownership interest in your business at this stage.
  • Do not want to relinquish a share of future profits of the business.
  • Have limited ability to raise equity due to size, market conditions, or dilution impact.
  • Do not want to relinquish operating control or strategic direction of your company and/or its Board of Directors.
  • Want to shield part of your business income from taxes. (If you finance your business using debt, the interest you repay on your loan is tax-deductible.)

How US Capital Partners Can Help

Since 1998, US Capital Partners has been providing debt and equity financing to small and lower middle market companies in the US and abroad. US Capital Partners provides growth capital term loans from $500,000 to $30 million for M&A initiatives, as well as for expansion generally. This offers a minimally dilutive option to a straight equity raise. US Capital Partners can also structure an optimal combination of a growth capital term loan together with some equity financing, thereby ensuring that more of the company remains in the hands of its founders or sponsors.


If you would like to know more about how your business can secure the funding it needs, email Jeffrey Sweeney, CEO and Managing Director, at or call