Raising debt for an LBO, an acquisition or a refinancing: how a debt advisory mandate works

An owner who borrows to buy a machine or finance inventory knows their banker and what to expect. Things change when financing a transaction on the capital. In an LBO, OBO or MBO, a holding company borrows to buy the shares of the operating company and repays with the dividends the latter pays up to it. ¹ In external growth, debt finances the acquisition of a target whose cash flows are not yet the group's. In a refinancing, it serves to extend the maturity of existing debt, replace financing that has become expensive or restrictive, fund an investment plan or pay a dividend to shareholders. In all these cases, the lender no longer finances an identifiable asset but a future capacity to generate cash, and reasons differently: recurring earnings, financial model, covenants, security, negotiated documentation.

This market has changed. Alongside banks, private debt funds invested €15.9 billion in France in 2025 across 379 deals, up 25% in value year on year. ² Owners have more options than ten years ago, but also more choices to make: which instrument, which lenders, which structure, which timetable. This article describes what a debt advisory mandate involves, from measuring debt capacity to the life of the loan, and what makes a good financing beyond the headline rate.

LBO, acquisition, refinancing: three situations, one logic

LBO, OBO and MBO. An acquisition holding company, owned by a fund, by the owner in an OBO or by the management team in an MBO, borrows to acquire the company's shares. The subsidiary's dividends repay the debt and tax consolidation allows interest to be offset against the target's profits. ¹ The debt must be sized so that dividends cover repayments while leaving the operating company the margins it needs. ¹
External growth. The company or its holding borrows to buy a target. The lender analyses two companies at once and the plan that brings them together: synergies, integration costs, combined working capital needs. The debt conditions the closing of the acquisition, so both processes must be run in parallel.
Refinancing. An LBO loan reaches mid-term, a poorly negotiated loan weighs on cash, an investment plan requires a new facility, or shareholders want to receive part of the value created without selling the company. Refinancing extends maturity, loosens covenants, consolidates several facilities or funds a distribution. Refinancings accounted for 42% of the amounts invested by private debt funds in France in 2025, against 23% the previous year. ²

Compared with an operating loan, three things change. The amount, which often represents several years of earnings. The analysis, which focuses on cash generated sustainably after tax, capital expenditure and changes in working capital. And the documentation, which is no longer a standard contract but a negotiated package: facility agreement, security, positive and negative undertakings, ratios to comply with, mandatory prepayment events.

The range of instruments and who provides them

Choosing the instrument is the first structuring decision. Each has its cost, accepted risk level, flexibility and speed of execution, and most transactions combine several.

Senior bank debt. The historical backbone of acquisition financing in France, provided by a single bank bilaterally, by a few banks together in a club deal or syndicated by an arranger to a larger group. It most often combines an amortising tranche, repaid in regular instalments, and a bullet tranche repaid at maturity. It is the cheapest debt, but also the most cautious on leverage, the most demanding on covenants and security, and the slowest when several credit committees are involved.
Unitranche. Provided by a private debt fund, it combines in a single tranche, with one lender and one contract, what a bank structure would split between senior and subordinated debt. Repaid at maturity, it preserves cash over the life of the loan, accepts higher leverage when cash flows are recurring and executes quickly. It is more expensive, and its bullet repayment implies a refinancing or a sale. In 2024, it accounted for 59% of the amounts invested by private debt funds in French companies, against an average of 47% over the previous four years. ³
Mezzanine and convertible bonds. Debt subordinated to senior debt, paid through cash interest and capitalised interest, sometimes with access to equity. It bridges the gap between what the bank will lend and what shareholders can contribute, at a cost between debt and equity, and banks treat it as reinforcement of equity.
Junior debt and PIK. Even more subordinated, paid mainly through capitalised interest, known as PIK for "payment in kind", settled at exit. They do not weigh on current cash but quickly increase the amount to be repaid. They are found in transactions of significant size.
Vendor loan. The seller agrees to receive part of the price in instalments, generally over one to three years according to Bpifrance Création, and becomes a lender subordinated to the banks. ⁴ It helps close a buy-out, reassures lenders, and Bpifrance can guarantee the bank that stands surety for this loan. ⁴ Its repayment schedule must be modelled with the bank loans, as all are repaid from the same cash flows. ⁴
Euro PP and private placements. Medium- or long-term financing in bond or loan form, agreed between a listed or unlisted company and a small number of institutional investors, usually through an arranger. ⁵ It is aimed mainly at unrated mid-caps and SMEs of sufficient size, offers longer maturities than bank lending and is repaid at maturity. ⁵ It suits a refinancing or an investment plan more than a quick acquisition.
Asset-based financing. Factoring, which turns receivables into cash, and leasing, which finances equipment and property, do not finance an acquisition as such but free up capacity: a factoring line set up on the target after its acquisition funds working capital and keeps the acquisition debt for the share price.
Bpifrance loans and public guarantees. Bpifrance, the French public investment bank, lends alongside banks. Its Prêt Transmission finances a buy-out by a holding of individuals or an SME's external growth, from €40,000 to €1,500,000, over five to seven years with a repayment holiday of up to twenty-four months, without security over the company's assets or the owner's personal wealth, provided it is accompanied by a bank loan of at least five years. ⁶ Its guarantees, which cover part of the bank's risk, ease the credit decision on small and mid-sized deals.

How to choose? Senior bank debt remains the starting point for a profitable SME financing a buy-out or a reasonably sized acquisition at the lowest cost, accepting regular amortisation. Unitranche is the answer when the deal requires speed and certainty of execution, when the plan involves successive acquisitions that a single lender will follow more easily than four banks, or when cash must fund growth rather than amortisation. Mezzanine and quasi-equity, participating loans or convertible bonds, complete a structure without diluting shareholders and reassure banks on the level of equity. A single lender simplifies the life of the loan; a bank pool spreads dependence and maintains relationships with everyday banks.

The 2024-2026 market: private debt takes hold, banks remain present

Private debt funds invested €15.9 billion in France in 2025 across 379 deals, against €12.8 billion across 317 deals in 2024, and raised €14.8 billion from their own investors, up 74% year on year. ^2,7 The average ticket, around €43 million, shows that this market remains primarily one of mid-caps and sizeable SMEs, even though some funds now go down to smaller tickets. ⁷ Buy-out financing, that is LBOs, remains the leading deal type by number, but its share of amounts fell in 2025 in favour of refinancings. ^2,7 Two developments deserve attention: in 2024, foreign funds carried out only one deal in five but provided 43% of amounts, and more than half of deals included a clause linking the interest rate to environmental and social indicators, which should be negotiated rather than accepted as given. ³

Banks have not disappeared. According to the Banque de France quarterly survey, in the first quarter of 2026, 98% of SMEs and 93% of mid-caps that applied for an investment loan obtained it in full or in large part, and 82% of SMEs for cash loans. ⁸ The cost of credit, however, has stopped falling: 21% of SMEs and mid-caps report an increase, against 13% the previous quarter. ⁸ This shift follows monetary policy: after bringing its deposit facility rate down to 2.00% in June 2025 and holding it for a year, the European Central Bank raised it in two steps to 2.50% from 11 September 2026. ⁹ The very favourable window of 2025 has partly closed, and preparation and competition weigh all the more on the outcome.

How a debt advisory mandate unfolds

A structured debt raise follows a sequence close to that of a sale: prepare, document, run a competitive process, negotiate, execute. Shortcuts are paid for at term sheet stage or, worse, after closing.

Diagnostic and debt capacity. The adviser rebuilds normalised EBITDA, adjusted for non-recurring items and the owner's pay, then the cash actually generated after tax, maintenance capex and changes in working capital. Seasonality, customer concentration, contract length and upcoming capex determine what the company can carry without strain. Sustainable leverage depends on the recurrence of cash flows, not on a market norm.
Structuring. Amount, split between tranches, maturity, amortisation profile, bullet portion, facilities for future investments or acquisitions, target leverage and above all headroom between the business plan ratios and the covenant thresholds offered to lenders. A good structure absorbs a disappointing year without triggering a default.
Preparing the file. The financing memorandum presents the company, its market, its adjusted track record, the transaction and the requested structure. The financial model includes a base case and a downside case with ratios calculated at each test date. The data room gathers accounts, forecasts, material contracts, legal documents and, for an acquisition, the due diligence reports on the target. The quality of this file determines the speed of responses and the credibility of the negotiation.
Consulting lenders. The adviser selects banks and funds whose credit policy, sectors and ticket size match the transaction, approaches them under a non-disclosure agreement and provides the file with a common timetable. Consulting banks and funds in the same process is often the best way to find the right balance between cost and flexibility, as each family adjusts its terms when it knows the other is being approached.
Term sheets and their comparison. Interested lenders submit a term sheet. Comparing them goes beyond the rate: margin, arrangement and commitment fees, amortisation, covenant definitions and thresholds, mandatory prepayment events, voluntary prepayment penalties, security, change-of-control clauses, conditions for future acquisitions and distributions. The adviser calculates the total cost of each option over the life of the loan, then negotiates with two or three lenders before selecting an offer.
Lender due diligence. The selected lenders have their advisers check the figures or rely on reports already produced for the acquisition. A well-prepared file reduces this phase to a few weeks.
Documentation. Facility agreement, security documents, pledge over the shares of the target and the holding, assignment of the warranty and indemnity in an acquisition, and, where several classes of lenders coexist, a subordination agreement and intercreditor agreement setting the order of repayment and each party's rights in case of difficulty. The borrower's lawyer drafts and negotiates; the debt adviser ensures economic consistency with the term sheet.
Closing and the life of the loan. Conditions precedent satisfied, funds drawn and, in an acquisition, the price paid on the same day. Then begins the life of the loan: periodic reporting, compliance certificates, waiver requests when the trajectory departs from the plan, approvals for acquisitions or distributions and, at mid-term, thinking about a refinancing. A lender informed early grants flexibility more readily than a surprised one.

Allow three to six months between launching the mandate and closing: four to six weeks of diagnostic and preparation, as many for consultation and term sheets, then six to ten weeks of due diligence and documentation. A simple refinancing with existing lenders is faster; an acquisition with several classes of lenders takes the upper end of the range. In external growth, this timetable must be aligned with the negotiation with the seller, as the debt conditions the signing.

What makes the difference beyond the rate

Covenants and headroom. The ratios the company undertakes to comply with, most often a leverage ratio and a debt service coverage ratio, are tested each quarter or half-year. Their definition, scope, permitted adjustments and gap with the plan matter more than their number. Covenants that are too tight turn the first difficult year into a permanent negotiation.
Flexibility for future acquisitions. An acquisition or capex facility committed from the outset, an accordion clause allowing debt to be increased on predefined terms, baskets of acquisitions permitted without prior consent: for an owner building a group, these are worth more than a few basis points of margin.
Security and personal guarantees. In an LBO, lenders take a pledge over the target's shares and sometimes the holding's. The owner's personal guarantee mainly arises in small deals; it can be negotiated, limited in amount and duration, and partly replaced by a public guarantee or an unsecured loan. ⁶
Prepayment clauses. Mandatory prepayment events, asset sales, change of control, excess cash, and voluntary prepayment penalties determine the freedom to refinance or sell before maturity. A unitranche with high penalties for several years locks the shareholder into its financing.
The long-term relationship with the lender. A five- to seven-year financing almost always goes through a less favourable period. The lender's sector knowledge, responsiveness on a waiver, appetite for one more acquisition and team stability matter long after closing.

The most common mistakes

Consulting a single bank. Going only to your historical bank deprives the borrower of any point of comparison and puts them in the position of supplicant. A consultation of four to eight lenders, banks and funds, changes the nature of the discussion.
Underestimating working capital needs after the acquisition. Transaction costs, suppliers shortening payment terms, customers delaying, inventory to rebuild: debt sized only for the share price, with no working capital facility, puts the company under strain from the first quarter.
Seeking maximum rather than sustainable leverage. Borrowing everything lenders will accept reduces the equity contribution but removes the margin for error. The right level is the one the company can repay in its downside case.
Accepting covenants that are too tight. A threshold set right at plan level to save a little margin costs far more at the first deviation, in waiver fees, renegotiation and management time.
Neglecting the timetable. In an acquisition, the seller expects a financed offer and a closing on schedule. Starting the search for debt after the letter of intent, or entrusting it to a single counterpart, loses either the exclusivity or the negotiation.
Presenting an unsupported financial model. Forecasts with no link to the track record, no documented assumptions and no downside case are rejected by credit committees or offset by harsher terms. Lenders finance a credible trajectory, not an ambition.
Confusing headline rate and total cost. Arrangement, commitment and agency fees, interest rate hedging, capitalised interest, prepayment penalties, lenders' advisers' fees: the real cost over the life of the loan can differ significantly from the announced margin. Only a comparison of total cost on the same scenario separates the offers.

You are thinking of raising debt: is this the right moment for you?

This is the first question we ask, and the answer does not depend only on the market. It depends on your project, because an LBO, an acquisition and a refinancing have neither the same urgency nor the same reversibility, and on your company's ability to carry the debt over time without sacrificing its investments or its flexibility. We encounter two situations.

Your company is almost ready. Profitability is recurring, cash is predictable, the accounts are clean and the need is well defined: an acquisition price, debt to refinance, an OBO structure. Or you are part of a structuring project, an LBO with a financial partner, an acquisition that changes the scale of the company, and lenders reason on a credible whole. A few weeks are then enough to build the file and approach lenders competitively, and the number of players in the market works in your favour.
Your company needs time. Results are volatile from one year to the next, one customer weighs too heavily, management accounts still need to be made reliable, working capital is not under control. Borrowing remains possible, but on less favourable terms: a smaller amount, a higher margin, tighter covenants, heavier guarantees. We will tell you frankly that it is better to spend a few months working on these points, and we can support you through this preparation phase before approaching lenders when the file is truly solid.

The workstreams that make the difference are well known: document the recurrence of revenue and margins, set up reliable monthly reporting, control receivables and inventory, formalise material contracts, clarify EBITDA adjustments and prepare a business plan defensible line by line. The benefit of talking early, even without an immediate project, is knowing your debt capacity before you need it: an owner who knows what the company can carry negotiates an acquisition with a credible offer, responds to an approach from funds with full knowledge and chooses when to refinance rather than having it imposed.

The role of the debt adviser and how they are paid

The debt adviser works for the borrower and the borrower alone. They do not lend, receive nothing from lenders and have no interest in favouring a bank or a fund: this independence lets them organise genuine competition and tell the owner which offer is best for them, not the easiest to close. They measure debt capacity, design the structure, draft the memorandum and model, consult lenders, compare and negotiate term sheets, coordinate due diligence and documentation with the borrower's lawyer, and remain available during the life of the loan. In an acquisition, they work hand in hand with the M&A adviser: one negotiates the price and terms with the seller, the other makes sure financing will be available on the date and on the terms the offer assumes.

Their fees have two components. A fixed fee covers the diagnostic, structuring and preparation of the file, carried out whatever the outcome. A success fee, paid at financial close, makes up most of the fee and aligns the adviser's interests with the borrower's. A serious adviser is transparent about this structure from the first meeting and is willing to tell the owner that the time has not come or that the proposed structure is not the right one.

Facing lenders who analyse dozens of files a year, an owner who goes to a single bank, with a file put together in a hurry, rarely obtains the best financing. An organised competitive process among several banks and debt funds, on a prepared file and a common timetable, is what reveals the true market terms for a given company.

The quality of a financing cannot be read in its headline rate. It lies in the structure, the amortisation profile, covenant headroom, the freedom to make acquisitions or prepay, the security granted and the long-term relationship with the lender. An independent adviser serves to measure what the company can carry, design the right structure, consult all relevant lenders and negotiate beyond the rate.

Frequently asked questions

What is a unitranche?

A unitranche is debt provided by a private debt fund that combines in a single tranche, with one lender and one contract, what a bank would split between senior and subordinated debt. Repaid in one go at maturity, it accepts higher leverage when cash flows are recurring and is set up quickly, but costs more and implies a refinancing or a sale at term. It accounted for 59% of the amounts invested by private debt funds in France in 2024. ³

Bank debt or private debt for an LBO: how to choose?

Bank debt is cheaper, amortising and suited to a reasonably sized deal with stable cash flows, at the cost of stricter covenants and longer committee lead times. Private debt, led by unitranche, offers speed, certainty of execution, bullet repayment and flexibility for future acquisitions, at a higher cost. The choice depends on the project, the cash needed for growth, planned acquisitions and the timetable. Consulting both families of lenders competitively allows a like-for-like comparison.

How long does it take to raise acquisition debt?

Allow three to six months between launching the mandate and drawing the funds: four to six weeks of diagnostic and preparation of the memorandum and financial model, as many for consulting lenders and negotiating term sheets, then six to ten weeks of due diligence and legal documentation. A refinancing with existing lenders is faster. In an acquisition, this timetable must be aligned with the negotiation with the seller.

What is a banking covenant?

A covenant is an undertaking given by the borrower in the facility agreement. Financial covenants are ratios to be met at each test date, most often a leverage ratio and a debt service coverage ratio. Non-financial covenants govern acquisitions, asset sales, distributions or additional debt. A breach opens an event of default that the lender can waive, often for a fee. Their definition and headroom against the plan are negotiable.

Can you refinance an LBO to pay a dividend?

Yes. When a company under LBO has repaid part of its debt and grown its earnings, its shareholders can put in place new, larger or longer debt, part of which is distributed to them without selling the company. This dividend recapitalisation requires the company to carry the new debt in a downside case and the existing documentation to allow it or be repaid. Refinancings accounted for 42% of the amounts invested by private debt funds in France in 2025. ²

How much debt can an SME carry?

There is no norm valid for every company. Debt capacity depends on the recurrence of earnings, the cash actually generated after tax, capex and changes in working capital, seasonality, customer concentration and upcoming investments. The right level is the one the company can repay in a downside scenario while keeping its ability to invest. A contractual, predictable business can carry more debt than a project-based one.

Is a personal guarantee from the owner needed for acquisition debt?

In structured deals, lenders secure themselves first through a pledge over the shares of the acquired company and sometimes the holding. The owner's personal guarantee mainly arises in small buy-outs; it can be negotiated, limited in amount and duration, and partly replaced by a public guarantee or an unsecured loan such as Bpifrance's Prêt Transmission, which requires nothing over the owner's personal wealth but comes with a bank loan. ⁶ A solid file reduces this requirement.

What does a debt adviser do?

The debt adviser works for the borrower, independently of lenders. They measure debt capacity, design the structure, draft the memorandum and financial model, consult banks and debt funds competitively, compare the total cost and terms of term sheets, negotiate covenants, security and flexibility clauses, then coordinate due diligence and documentation through to closing. They are paid through fixed and success fees and receive nothing from lenders. In an acquisition, they work in tandem with the M&A adviser.

Public sources consulted

Bpifrance Création, La holding de reprise : montage juridique et fiscal (encyclopédie Reprendre une entreprise) : https://bpifrance-creation.fr/encyclopedie/reprendre-entreprise-etapes/choisir-montage-juridique-fiscal/holding-reprise (high reliability)
Option Finance, Près de 15 milliards d'euros levés par les fonds de dette privée en 2025, d'après l'étude France Invest / Deloitte (19 mars 2026) : https://www.optionfinance.fr/actualites/pres-de-15-milliards-deuros-leves-par-les-fonds-de-dette-privee-en-2025.html (good reliability)
France Invest et Deloitte, Activité des fonds de dette privée en France en 2024 (étude publiée en 2025) : https://www.deloitte.com/content/dam/assets-zone2/fr/fr/docs/about/2025/deloitte_france-invest-dette-privee-2025.pdf (high reliability)
Bpifrance Création, Recourir au crédit vendeur pour reprendre une entreprise : https://bpifrance-creation.fr/encyclopedie/financements/lemprunt/recourir-au-credit-vendeur-reprendre-entreprise (high reliability)
Banque de France, fiche L'Euro PP, Financements de marché et alternatifs (mai 2021) : https://www.banque-france.fr/system/files/2024-04/823415%20Fiche-333.pdf (high reliability)
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Banque de France, Accès des entreprises au crédit, 1er trimestre 2026 (mai 2026) : https://www.banque-france.fr/fr/statistiques/credit/acces-des-entreprises-au-credit-2026-q1 (high reliability)
Banque de France, Les taux monétaires directeurs de la BCE (décision du 10 septembre 2026) : https://www.banque-france.fr/fr/les-taux-monetaires-directeurs (high reliability)