Equity Financing Equity is more expensive than debt because it carries the most risk since it has no claim to the company's assets. Acquisitions that have unstable cash flows, require capital for continued growth and compete in turbulent industries often require a greater amount of equity financing. Equity provides more financial flexibility because, unlike debt, it does not require scheduled payments. Financing an acquisition with equity requires relinquishing some amount of ownership in the combined company. Additionally, equity investors will often assume some amount of representation on the board of directors.
Equity investors can take the form of leveraged buyout funds, venture capital funds or corporations.
It is also possible to use the acquirer's stock to purchase all or some of the shares of the target. This is very common among companies whose stock is publicly traded. However, if the owner of the target would like to retain some stake in the combined company, then exchanging shares is a sensible solution. In order to complete a stock swap, a value must be placed on the equity of both companies and a share price must be determined. The investment banker on the acquisition team will be able to provide guidance in valuing both companies.