Structuring and financing a deal: a CFO's execution playbook

M&A activity in 2026 remains selective but active. With credit markets more disciplined than they were in 2021, and with private equity holding a record volume of aging portfolio companies, sellers are motivated but buyers face real financing constraints. The CFO who walks into a deal process without a pre-built structural framework will spend the back half of the process reacting to banker proposals rather than shaping them. That gap, between reactive and deliberate, is where deal value leaks.

This playbook is built for the CFO who has a mandate to close a transaction and needs a clear sequence of decisions, not a survey of options.

Build the deal structure from the liability side, not the asset side

Most financing conversations start with "how much can we borrow?" That is the wrong first question. Start instead with the post-close balance sheet you can live with under a stress scenario, then work backwards to determine what the financing mix must look like.

Step 1: set your floor, not your ceiling

Model three scenarios for the combined entity: base, downside, and a liquidity stress case where revenues disappoint by 15-20% in year one. Define the minimum EBITDAEBITDAEBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) measures a company's operating profitability before financing and accounting decisions, used to compare core performance across firms.View full definition → coverage ratio and net leverage threshold your board and lenders will accept in the worst case. That output becomes a hard constraint on debt capacity, before you talk to a single bank.

For industrial acquisitions where revenue visibility is reasonable, many CFOs find that 3.5x to 4.5x net debt to EBITDA is a sustainable ceiling for investment-grade acquirers. For software businesses with high recurring revenue, banks will stretch to 6x or beyond, as Microsoft demonstrated with its Activision financing in 2022 and as buyers of SaaS assets continue to push. Know which category you are in.

Step 2: sequence the financing instruments deliberately

The order matters because each instrument affects the next. Equity first: determine whether you are issuing shares, using balance sheet cash, or drawing on an existing revolver. Then size the senior secured debt based on your stress-case coverage floor. Only then consider mezzanine, seller notes, or earnouts to bridge any remaining gap to the purchase price.

Seller notes are underused in CFO toolkits. When a seller accepts a note for 10-15% of the purchase price, it signals conviction in the business and reduces the cash you need to raise at closing. It also aligns the seller's interest in a clean transition. In mid-market deals below 500 million euros or dollars, seller notes regularly close valuation gaps that would otherwise kill a transaction.

Earnouts deserve separate treatment. They appear to solve disagreement on value but they routinely create litigation. A 2023 analysis by SRS Acquiom, a transaction services firm, found that earnout disputes were the single largest source of post-close M&A litigation in North American deals. Use earnouts only when the metric is genuinely objective, measurable without management discretion, and settled within 18 months of closing. Revenue-based earnouts perform better than EBITDA-based ones in practice because EBITDA is easier to manipulate through cost allocation.

Step 3: choose the legal structure to match the tax and liability outcome

Asset deals versus share deals is not just a tax question, though tax is often decisive. In a share deal, you inherit contingent liabilities: undisclosed litigation, pension deficits, historical tax positions. In an asset deal, you get a step-up in tax basis (valuable) but may trigger change-of-control provisions in key contracts and lose transferable licenses.

Run both structures through a quantified comparison before the letter of intent. The tax benefit of an asset deal's depreciation step-up can be worth 5-8% of purchase price in net present valuenet present valueNet Present Value is the sum of an investment's future cash flows discounted to today, minus the initial outlay. A positive NPV signals value creation.View full definition → terms. That number should be on the table when the seller asks for a higher headline price in exchange for agreeing to an asset deal structure.

Step 4: lock in financing before price is final

A fully committed financing package, not a "highly confident" letter, should be in place before you sign the purchase agreement. The collapse of deals due to financing failure is less common than the value destruction that comes from signing under pressure with uncommitted debt, then renegotiating terms in a tighter market. BHP's withdrawal from its Potash Corporation bid in 2010 and Broadcom's abandoned Qualcomm pursuit in 2018 are extreme examples, but the dynamic of market conditions shifting between signing and close is real and frequent.

If you cannot get committed financing before sign, build a specific financing condition into the purchase agreement, and negotiate the reverse termination fee accordingly. A reverse break fee of 3-5% of deal value is standard in deals where the buyer carries financing risk.

Pitfalls that sink deals after the structure looks right

The most common failure mode is letting the investment bank drive the financing structure because the CFO's internal team lacks the bandwidth to push back. Banks have strong incentives to maximize fee-generating complexity. A second lien tranche generates more fees than a clean revolving credit facility. Scrutinize every layer of the capital structure for what it actually costs versus what it pays the adviser.

Synergy overcounting is a structural problem, not just a forecast problem. When synergies are used to justify debt capacity, and then fail to materialize on schedule, the company is suddenly overleveraged with no plan. Separate your synergy case from your base financing case. Synergies should expand your return, not prop up your ability to service debt.

Currency mismatch is easy to overlook in cross-border deals. If revenues are in euros and debt is in dollars, a 10% FX move can flip your coverage ratio materially. Match the currency of your debt to your cash flows, or hedge explicitly and account for the hedging cost in your return model.

Quick wins to start this week

• Build a one-page stress-test template for your next deal that fixes leverage constraints before any bank conversation begins.
• Pull your last two or three acquisition agreements and check whether earnout metrics were revenue or EBITDA based, then document what actually happened versus the target.
• Ask your legal adviser to quantify, in writing, the NPVNPVNet Present Value is the sum of an investment's future cash flows discounted to today, minus the initial outlay. A positive NPV signals value creation.View full definition → of the tax step-up in an asset deal for your current target, even as a rough estimate.
• Confirm with your relationship banks which financing structures they can fully commit to versus which they can only provide highly confident letters for.

Structure discipline is what separates CFOs who build durable post-acquisition balance sheets from those who spend the next three years managing a debt problem they created at signing. The time to establish that discipline is before the deal timeline creates pressure to compromise it.