Twitter Was Bought for 44 Billion Dollars and the Debt Came With It
The acquisition completed in October was structured with a large amount of borrowed money placed onto the company being purchased, which is the defining feature of a leveraged buyout.
The Structure
The acquisition of Twitter closed in late October 2022 at roughly 44 billion dollars. A substantial portion was funded with debt arranged by a syndicate of banks, and the critical structural detail is where that debt landed. It was placed on the acquired company rather than on the buyer personally.
This is standard in leveraged transactions and it surprises people every time. The company being purchased ends up owing the money borrowed to purchase it, and the interest is paid out of its own cash flow.
Why Debt Is Used at All
Leverage magnifies equity returns. If a buyer acquires a company for 10 billion using 3 billion of equity and 7 billion of debt, and later sells for 12 billion, the 2 billion gain is earned on a 3 billion investment rather than a 10 billion one. Interest is also tax deductible in most jurisdictions, which lowers the effective cost of debt relative to equity.
The same arithmetic runs in reverse. If the sale price falls to 8 billion, the debt is still 7 billion, and the equity is nearly wiped out. Leverage does not change the expected outcome, it widens the distribution in both directions.
Leverage does not make a business better. It makes the equity outcome larger in both directions, which is a different property entirely.
The Cash Flow Test
The question that determines whether a leveraged deal works is straightforward. Does the business generate enough predictable cash flow to service the interest?
Private equity firms historically favored targets with stable, contracted revenue for exactly this reason. Utilities, business services, and subscription models produce cash that arrives whether or not the economy cooperates. Interest is a fixed obligation and fixed obligations require predictable inflows.
Advertising revenue is close to the opposite. It is cyclical, it falls quickly in a downturn since marketing budgets are among the easiest to cut, and it is concentrated among advertisers who can leave for reasons unrelated to the product. Placing large fixed interest obligations against volatile advertising revenue increases risk substantially, and the annual interest burden here was reported in the range of a billion dollars or more.
The Banks Were Left Holding It
A detail worth understanding is what happened to the lenders. Banks that arrange acquisition debt normally syndicate it, meaning they sell participations to institutional investors and collect fees rather than holding the risk.
By late 2022 credit markets had deteriorated sharply as rates rose, and demand for risky leveraged loans had thinned. The banks were unable to sell the debt at acceptable prices and held it on their balance sheets, marking it below par. This is called a hung deal, and it is a recurring hazard when a transaction is agreed in one credit environment and funded in another.
The Timing Lesson
The deal was agreed in the spring and closed in the autumn. Between those dates the Federal Reserve raised rates aggressively, credit spreads widened, and technology valuations fell substantially.
Acquisition agreements are typically binding, which means a buyer can be committed to a price set under conditions that no longer exist. Financing risk between signing and closing is a real exposure, and 2022 provided an unusually visible demonstration of it.
The Bottom Line
The debt used to buy a company generally sits on that company. When the revenue funding it is cyclical and the deal is signed before a credit tightening, the structure carries risk that has nothing to do with whether the product is good.