The payment method of MBO is cash acquisition, not stock exchange acquisition, so acquisition financing is very important. In a typical MBO financing structure, the sources of funds include three parts:

1, 10% of the purchase price is provided by the management team, which forms the equity capital of the reorganized enterprise after the merger.

2. 50-60% of the payment is provided by bank loans, which form priority creditor's rights and are secured by enterprise assets, usually syndicated loans composed of several banks.

3.30-40% of the purchase funds are provided by mezzanine funds.

The essence of mezzanine fund is a kind of loan fund, which provides funds and recovers funds in the same way as ordinary loans, but ranks behind bank loans in the repayment order of enterprises. Therefore, in M&A financing, secured financing methods such as bank loans belong to priority creditor's rights, and mezzanine funds belong to secondary creditor's rights. Junk bonds, which are very famous in leveraged buyout financing, are also a way to provide subordinated debt funds, and have the same function as mezzanine funds. However, due to the credit crisis in junk bond market after 1990s, the subordinated debt funds in western leveraged buyouts mainly come from mezzanine funds.