What risk might a buyer face when borrowing to finance a Mergers and Acquisitions deal?

When a buyer borrows to finance a Mergers and Acquisitions deal, they face a heightened bankruptcy risk. This is largely due to the increased debt burden that comes with financing the acquisition. When companies take on debt, they are obligated to service that debt through interest payments and principal repayment, which can strain cash flows. If the newly acquired business does not perform as expected or if the broader market conditions deteriorate, the company may struggle to meet these financial obligations.

The risk of bankruptcy escalates if revenue generation does not increase to cover the new debt load or if unforeseen costs arise during the integration of the acquired company. This financial pressure is especially pronounced in M&A deals where significant leverage is employed. Buyers must carefully consider their capacity to manage this debt while ensuring that the combined business can operate sustainably and effectively cover its liabilities.

Other options presented do not directly reflect the financial realities associated with leveraging a deal. Increased revenue sharing would pertain more to revenue models rather than debt exposure, increased operational control doesn't address the financial risk aspect, and a reduction in capital expenditures does not inherently relate to the risk associated with borrowing for an acquisition.