How do you finance a business acquisition with debt?
In short
How UK lower-mid-market companies fund an acquisition with debt: a senior term loan or unitranche sized on the combined group and its scrubbed EBITDA, an asset-based facility where the combined book supports it, and vendor loan notes bridging what the debt cannot prudently reach. Lenders credit synergies sparingly and underwrite integration risk alongside the numbers, and the process runs to the deal timetable rather than yours: two data rooms, debt committed at exchange, and completion mechanics of its own.
Written by Gregory Elgunov, Managing Director · Last reviewed 25 September 2026
Most UK lower-mid-market acquisitions are funded mainly with debt, sized on the combined business rather than the buyer alone. A senior term loan or unitranche does most of the work, with vendor paper and sometimes an asset-based facility around it. The lender underwrites two businesses and one plan, so it scrubs the combined EBITDA, credits synergies sparingly and prices integration risk, and the process runs to the sale timetable.
Written for the borrower’s side of the table. This is general guidance, not advice on your transaction, and it deepens the shorter answers in our working guide. Valuation, the sale and purchase agreement and the tax structuring belong to your corporate-finance lead, lawyers and accountants; we run the debt.
A senior facility does most of it. Three other layers flex around it.
Acquisition is what much of this market exists to fund: on the Deloitte tracker about two-thirds of European private-debt activity funds an acquisition rather than a refinancing or growth. Deloitte Private Debt Deal Tracker. The workhorse is a senior term loan from a clearing or specialist bank; a unitranche from a direct-lending fund replaces the bank layers with one lender, an asset-based facility funds against the combined book, and the seller’s paper sits behind them all, as the table sets out.
The four layers that fund an acquisition.
| Row | Shape | How far it goes | Where it fits |
|---|---|---|---|
| Bank senior term loan | Drawn at completion, usually amortising, with a revolving facility alongside for working capital | Around 2.5 to 3.5 times EBITDA | The cheapest money on the menu; a single deal at modest combined leverage |
| Unitranche | One lender, one document and a bullet repayment, which keeps cash in the business through the integration years | 4 to 4.5 times, occasionally 5 for a strong credit | Priced materially wider than bank debt; earns it where the leverage, the speed or the acquisition appetite is used |
| Asset-based facility | Funds against the combined borrowing base of receivables, stock and plant | Receivables typically advanced at 80 to 90% of the eligible book | Working-capital-heavy combinations, often blended with a cash-flow term piece |
| Vendor paper | Deferred consideration or loan notes, left in by the seller and subordinated behind the senior lender | Whatever the debt cannot prudently reach | Stretching what a deal can fund without adding senior risk; lenders treat it much like equity |
Specialist and challenger banks sit between the clearers and the funds, pricing a little wider and stretching a little further. A buyer planning further deals adds a committed acquisition line, so later bolt-ons draw against agreed criteria instead of a new credit process. Our guide to unitranche versus bank senior debt compares the two main structures.
An asset-heavy target partly funds its own purchase, because its book enlarges the borrowing base the moment it is acquired. The seller’s paper needs its subordination documented before the senior lender funds, as our guides to vendor loan notes and financing a management buyout set out.
Lenders size the debt on the combined group, then discount the story.
The starting point is pro forma EBITDA, the buyer’s and the target’s added together after both sets of add-backs are scrubbed, and the conventions in Fig. 01 apply to the combined figure. Existing debt on either side is normally refinanced inside the new facility, because change-of-control provisions make the target’s facilities repayable at completion, so the new money for the price is capacity minus everything that has to be cleared. The three lenses behind the capacity number are in how much can my business borrow.
A worked illustration
Illustrative arithmetic at those conventions, not a quote: a buyer with £2m of EBITDA acquires a target earning £1.5m, so the combined group earns £3.5m. At a prudent 2.5 to 3 times, inside the bank range, capacity is roughly £8.75m to £10.5m, and refinancing the buyer’s existing £2.5m term loan leaves about £6.25m to £8m of new money before fees. Against a £6m price, 4 times the target’s EBITDA, the bank route works at the top of its range and is tight at the bottom. A unitranche at 4 times the combined £3.5m gives £14m of capacity, comfortably enough and at a higher price. The pipeline and the downside case decide which is right.
Synergies are where deals over-reach. By market convention lenders credit contracted or mechanical cost savings, a duplicated lease ending or a supplier contract already repriced, in part at most, and revenue synergies rarely at all. If the price only works with the synergies banked, the debt is sized on the good case, and the first covenant test arrives as integration costs land and before the savings do. The first year after completion is commonly the softest, so size the debt on it, as our short answer on how much leverage to raise and how much to take sets out.
Size the facility on the full uses, not the headline price: a cash-free, debt-free price adjusts for working capital at completion, the target’s facilities are repaid on the day, and the deal carries its own diligence, legal and lender costs. Fig. 02 lays out the sources and uses of an illustrative £10m purchase, the worked example from our equity guide.
Sources and uses of an illustrative £10m purchase.
Uses
£10.11m
Price
£10.00m
Sources
£10.11m
Senior debt
£6.00m
3.0× EBITDA
Vendor loan notes
£2.00m
Equity
£2.11m
- Stamp duty and fee£0.11m
- Stamp duty£0.05m
- Arrangement fee£0.06m
- Existing debt refinancednil
Illustrative: the £10m purchase in our equity guide’s worked example, with £2m of EBITDA, senior debt at 3.0 times and £2m of vendor loan notes. Stamp duty is 0.5% of the price and the arrangement fee 1% of the senior debt.
Stamp duty and the lender’s fee alone add £110,000 to the uses, and with the debt and the vendor notes fixed, all of it falls on the equity, as do the advisers, lawyers and diligence. A facility sized to the price alone is found short in the final funds flow.
Your numbers
Run the same arithmetic on your own price, earnings, existing debt and vendor paper with the equity calculator in our guide to how much equity a buyout needs.
Two businesses, one credit: the combined story has to survive diligence.
The target’s earnings arrive through a sale process, assembled by an adviser paid to present them well, so they get the harder scrub. Expect the quality-of-earnings work to be read closely, the add-backs challenged and the target’s customer concentration tested against the combined book. A first-time acquirer is underwritten more cautiously than one with an integration behind it, because the track record is part of the collateral.
Integration risk is a credit matter. Who runs the enlarged group, and with what bandwidth? Do the systems merge or coexist? Are the target’s key people locked in? Does the combination concentrate revenue the model treats as diversified? A plan that answers those plainly reads as a stronger credit and moves faster through committee.
At completion the lender typically takes a charge over the acquired shares and a debenture over the enlarged group, with the acquired companies acceding as guarantors, while the target’s own facilities are repaid and its charges released, as debentures and charges explained sets out. A buy-and-build’s committed acquisition line is underwritten once against criteria, deal size, sector and pro forma leverage after each purchase, so the platform need not return to committee for every bolt-on.
Lenders rely on the deal diligence instead of repeating it, so commission the quality-of-earnings, legal and commercial reports with lender reliance in mind and agree the reliance letters early. Sellers also read the deliverability of your financing as part of your bid, and committed papers beat an indicative term sheet at the same headline price, which is a reason to run the debt ahead of where the deal strictly requires it.
You run two data rooms to a timetable that is not yours.
In a refinancing you assemble one data room and choose when the process starts. On an acquisition the lender diligences you and the target, whose data room belongs to the seller and runs through the M&A workstream, so put the lender’s question list inside your diligence plan from the start.
Sellers in UK private deals commonly expect the debt to be committed by exchange, with no financing condition in the sale and purchase agreement, so the term sheet, credit approval and signed facility documents have to land in step with the SPA and inside its long-stop date. A clean raise runs twelve to sixteen weeks from mandate to money and a deal timetable usually compresses it, so start the debt when heads of terms are agreed, run the term-sheet competition during diligence and time credit approval against exchange with margin for slippage. A buyer who reaches exchange with one uncommitted lender has handed its negotiating leverage to everyone else at the table.
At completion the facility’s conditions precedent are matched against the SPA’s completion obligations, the drawdown pays the sellers’ solicitors through an agreed funds flow, and the security over the target is perfected on the day. If the target’s activities fall within one of the sensitive areas defined under the National Security and Investment Act 2021, government clearance is a completion condition in its own right, and a notifiable acquisition completed without approval is void. GOV.UK, NSI Act guidance. The debt is one workstream in a transaction, run in parallel with the rest.
Some acquisitions need less debt than they can raise. Some need a different deal.
Start with the cheaper instrument. A single acquisition at modest combined leverage, with no pipeline behind it, is a bank deal, and a unitranche premium for capacity you will never draw pays for flexibility the deal will not use. The fund route earns its cost where the leverage, the bullet or the committed line is doing real work.
Then test whether the debt is carrying a price problem. If the deal only works at the top of the leverage range with the synergies banked, the financing is compensating for the valuation, and the answers are those of any stretched deal: more vendor paper, a majority now and the rest later, an equity partner, or a cleaner price, as the management buyout guide sets out.
Whatever the structure, the covenants land on the combined group and are tested first when integration costs are highest. Push for headroom of at least 25 to 30% against the base case, an EBITDA definition that counts disclosed integration costs as add-backs, and a cure right for a soft quarter; a margin saved at term sheet is poor compensation for a covenant reset in month nine.
We will tell you what the combined business can carry.
If you are funding an acquisition, the useful first conversation is capacity on the combined group, which structure fits the deal and its pipeline, and whether the debt can land inside the deal timetable. It is confidential and costs nothing. We run the whole market, bank and fund, against itself, and we will say when the amortising bank facility is the right answer, when the deal needs less debt than it could raise, or when the price is asking the financing to fix it. See how a mandate runs in how we work, or the full range of what we advise on in our services.
The terms in this guide
Each is defined in full in the library, with the levels and conventions that apply at £3-15m.
- Acquisition finance
Acquisition finance is sized on the combined group rather than on either company alone, against scrubbed earnings and after refinancing whatever debt is already there. The new money is what is left once both of those are done.