A leveraged buyout is an acquisition financed mainly with borrowed money secured against the target company’s own assets and cash flow, so the debt — and the obligation to service it — moves onto the target’s balance sheet rather than staying with the buyer.
Most institutional and independent-sponsor buyouts in Canada are structured as share purchases, which keeps the target’s existing contracts, licences and tax attributes intact — but it also takes the federal government’s small-business loan program off the table entirely. The Canada Small Business Financing Program’s own FAQ is explicit: “you cannot use a loan to finance items such as share purchases or assets that a holding company acquires,” and even an eligible asset purchase can only finance “the lesser of the cost of purchase and the appraised value” of the assets bought.
So a Canadian buyout’s debt is arranged commercially, not through that program. A senior secured lender goes in first, and in mid-market deals a mezzanine lender often fills the gap between what the bank will advance and the sponsor’s own equity: illustrative Canadian mid-market structures put senior debt at roughly 3.0× EBITDA priced around 10%, mezzanine adding about another 1.0× EBITDA at 8–12% (often with a paid-in-kind component), for total leverage near 4× EBITDA — more aggressive deals reaching 5–6× — with sponsor equity making up roughly 35–45% of the price and a seller sometimes rolling over around 5% (deavo.ai/financing, “an illustrative estimate built from typical Canadian structures … not a financing offer, a pre-approval, or financial, legal or investment advice”).
A sponsor agrees to buy a manufacturing business for $18,000,000 on a cash-free, debt-free basis. A senior lender advances $9,600,000 (about 3.0× the target’s $3,200,000 of EBITDA); a mezzanine fund adds $3,200,000 (about 1.0× EBITDA), partly paid in kind; the seller rolls $900,000 of equity into the new holding company; the sponsor writes the remaining $4,300,000 equity cheque. Total leverage sits at roughly 4.0× EBITDA, in line with the illustrative mid-market range above — and every dollar of that debt, not the sponsor’s equity, is what makes this a leveraged buyout rather than an all-equity purchase.
See also: Mezzanine debt · Senior secured term loan · Platform investment.
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