Acquisition vs. Greenfield: Comparing Buy vs. Build Models in Investment Banking

Buy vs. Build: Acquisition or Greenfield, a Modeling Guide

Acquisition means buying control of an operating business or asset. Greenfield means building a new operation from scratch. Choosing between acquisition and greenfield is a modeling question about risk, timing, control, and financing. The goal is simple: convert capital into reliable cash the fastest with acceptable risk.

This guide distills the mechanics, documentation, economics, accounting, tax, regulation, and execution patterns that drive the buy versus build decision. Along the way, it adds a practical modeling angle so decision makers can test sensitivities and lock governance before committing capital.

Scope that narrows the decision

A tight scope focuses the analysis on outcomes you can control and risks you can price. Define what counts as buy or build before you model the base case and sensitivities.

Acquisition paths: Share or asset deals, carve-outs, and platform buys with add-ons.
Greenfield paths: New builds from the ground up. Brownfield sits close to greenfield on construction and ramp-up risk.
Excluded paths: Non-controlling stakes, franchise models without capital at risk, and purely virtual expansions.
Incentive alignment: Sellers push for certainty and speed; buyers trade price for information and protection. Greenfield sponsors prize option value and design control, while contractors and lenders price completion risk and want step-in rights.

Market signals that move buy to build

Regulatory friction and policy support often tilt the scales. Track both because timing, certainty, and after-tax returns determine feasibility.

On the buy side, antitrust and foreign investment reviews tightened. The 2023 U.S. Merger Guidelines emphasize concentration and serial deals, which raises process risk and remedy uncertainty. In the EU, the Foreign Subsidies Regulation adds a suspensory filing for deals that meet turnover and non-EU contribution thresholds, increasing timing and disclosure burdens. U.S. HSR thresholds adjust annually, and for 2024 the floor is 119.5 million dollars. These factors can push a strategy from buy to build when review timelines or likely remedies erode the deal logic. For deeper context on U.S. review dynamics, see this overview of the Second Request in antitrust.

On the build side, policy support matters. In the U.S., IRA transferability and direct pay rules finalized in June 2024 let sponsors monetize credits at or near closing, which lowers equity at risk. In the UK, permanent full expensing for main-rate plant and machinery lifts after-tax returns for qualifying capital expenditures. Where policy rules are stable and credits are bankable, more projects pencil.

Key mechanics: how cash actually moves

Acquisition: structure, control, and funding

Capital stack: Common equity, seller rollover, preferred equity, junior debt, senior secured debt, and sometimes bridge-to-bond. Commitment papers set pricing and flex. Ticking fees hedge drift.
Funds flow: Consideration to seller, target debt payoff, escrows for indemnity or price adjustments, fees and expenses, and R&W insurance premium if used. Model withholding and stamp duty before close to avoid cash surprises.
Security priority: Intercreditor terms govern lien and payment priority among RCF, term loans, and bonds. Collateral often covers shares and assets; local law drives registrations. Lender information rights follow covenant packages.
Liquidity triggers: Mandatory prepayments on asset sales, insurance proceeds, and excess cash flow; springing maturities tied to unsecured maturities or audit delivery.
Close conditions: Antitrust and FDI approvals, consents on material contracts, leakage checks in locked-box deals, and carve-out stand-up measured against a TSA plan.

Greenfield: discipline, step-in rights, and completion

Capital stack: Sponsor and development equity, construction loan converting to term debt, subordinated debt or preferred equity, and policy-linked credit monetization. Equity draws first or alongside debt under gearing tests; lenders control disbursements via a technical adviser.
Funds flow: Draws fund EPC progress, owner’s costs, contingency, and interest during construction. Milestones tie to engineer certifications and lien waivers.
Waterfall and security: Cash moves from a revenue account to O&M, taxes, debt service, reserves (DSRA, MRA, capex), then distributions if tests are met. Security covers all project assets, contracts, permits, and bank accounts; direct agreements provide step-in rights.
Completion protections: Performance bonds, parent guarantees, and liquidated damages for delay and underperformance, plus sponsor completion support if required. Offtake, capacity, or take-or-pay contracts stabilize revenue. Merchant exposure tightens distribution tests.

If you are building the lender case, a practical companion is a structured approach to project finance modeling.

Documentation map: what you will sign

Acquisition: core agreements and regulatory interfaces

Purchase agreement: The SPA or APA sets price mechanics, representations and warranties, covenants, indemnities, and interim operations. Disclosure schedules carry detail. Locked-box focuses on no-leakage; closing accounts focus on net working capital.
Ancillaries: TSA for carved-out functions, IP assignments, employee transfer and retention agreements, non-compete, escrow agreement, and local transfer documents.
Financing suite: Credit agreement, security documents, intercreditor, guarantor map, perfection certificates; offering materials mirror business disclosures.
Insurance overlay: RWI policy and binder; exclusions shape SPA scope. Align fraud carve-outs and sandbagging across SPA and RWI. For fundamentals, see this explainer on representations and warranties.
Regulatory filings: HSR, CFIUS where relevant, EU merger control, sector approvals. The U.S. Corporate Transparency Act adds beneficial ownership reporting for new entities.

Greenfield: contracts that make lenders comfortable

Corporate governance: Shareholders’ or JV agreement with governance thresholds, reserved matters, information rights, transfer limits, and financing consent matters.
Build and operate: EPC with fixed price, date-certain schedule, LD regime, testing and commissioning; O&M agreement; LTSA for critical equipment; supply agreements with LDs for late delivery.
Revenue contracts: Offtake (for example, a PPA), throughput, capacity, or availability contracts, with credit support if needed.
Financing and security: Common terms and facility agreements, intercreditor, accounts agreement, security trust, direct agreements, and hedging aligned to lenders’ policies.
Permits and land: Site control, zoning, environmental permits, water rights, grid interconnection or rights-of-way.

Economics and the fee stack you must underwrite

Acquisition: cash conversion and synergy risk

One-off costs: Banker, legal, technical diligence, QoE, fairness opinions, filing fees, RWI premium, financing OID and upfronts.
Ongoing costs: TSA fees, stranded cost takeout, integration spend, and later public company costs if listing.
Tax impacts: Stamp duty and transfer taxes may apply. Stock deals can avoid some taxes but may forgo a basis step-up without an election.
Example math: Buy at 10.0x current EBITDA of 50, with 10 of net synergies, 15 of one-time integration costs, and 60 percent debt at 8 percent cash cost. Unlevered pre-tax yield on EV equals (50 + 10) / 500 = 12 percent. Converting synergy to cash and earnings bridge discipline drive deleveraging; overruns or slow TSA exit cut returns quickly.

Greenfield: schedule, credit monetization, and IDC

One-off costs: Development, permitting, interconnection, owner’s engineer, bid costs; EPC mobilization and security embedded in price; interest during construction capitalized to COD.
Ongoing costs: O&M fees, major maintenance reserves, lender monitoring.
Tax and policy: Credits and accelerated recovery shape returns. U.S. transferability lets sponsors sell credits for cash at or near COD, lowering equity needs. Local abatements and grants can be conditions to financial close.
Example math: Capex 400 over two years, IDC about 30 to 40, EBITDA 70 at COD plus one year. Unlevered pre-tax yield on total cost roughly 70 / 440, about 15.9 percent if schedule and ramp meet plan. A 6 month delay and 10 percent overrun can pull yield toward 13 percent.

Accounting and reporting: what changes on Day 2

Accounting changes the optics of value and the constraints on distributions. Set expectations early for how the numbers will look and what lenders will require.

Acquisitions (ASC 805/IFRS 3): Allocate fair value to identifiable assets and liabilities, with the residual to goodwill. Intangibles such as customers and technology are recognized and amortized; goodwill is impairment-tested. Measurement period adjustments run up to one year. Earnouts are fair-valued initially and remeasured per regime.
Greenfield (ASC 360/IAS 16 and IAS 23): Capitalize directly attributable costs and borrowing costs. Revenue recognition begins after commercial operation date. Consolidation hinges on VIE or control analysis (ASC 810/IFRS 10). Service concessions may follow IFRIC 12.

Pro forma focus differs. Acquisitions emphasize pro forma financials and sometimes audited target historicals. Greenfield emphasizes commitments, construction-in-progress, and capitalized interest. KPIs shift from synergy delivery to milestones and availability.

Tax notes that move the model

Asset vs. stock: Asset deals grant a basis step-up but may trigger more transfer taxes and consents. Stock deals carry attributes and liabilities. U.S. elections under 338(h)(10) or 336(e) can mimic a step-up in defined cases.
Interest limits: IRC 163(j) uses EBIT. Many taxpayers cap interest at 30 percent of tax EBIT with carryforward of excess capacity.
Depreciation regimes: U.S. bonus depreciation phases down (60 percent in 2024 unless changed). UK full expensing for main-rate plant and machinery has no sunset.
Section 174: R&D costs capitalize, with five-year domestic amortization and 15-year foreign amortization. Build strategies with heavy software or design spend see lower near-term deductibility.
Cross-border frictions: Withholding on cross-border payments hits both paths. Acquisition structures use treaty-qualified entities and comply with hybrid rules. Greenfield in emerging markets often seeks tax stabilization; transfer pricing for O&M and management must reflect substance.

Regulatory focus: model timing, certainty, and remedies

Pre-sign analysis of reportability and likely remedies is critical. The 2023 U.S. Merger Guidelines elevate the chance of extended reviews, even for mid-market overlaps. EU FSR filings are suspensory for qualifying deals and demand disclosure of non EU financial contributions. HSR thresholds update annually and filing fees scale with deal size. Avoid gun jumping and premature integration steps. CFIUS screens deals touching TID sectors; mitigation can include governance controls and data localization. Greenfield faces permits, environmental reviews, and labor rules. Early land and permitting diligence sets the feasibility line. Sanctions, export controls, and KYC belong in procurement to avoid blocked counterparties.

Risk map: where cases fail

Acquisition risks

Integration gaps: TSA dependence can stretch; duplicated costs persist until systems cut over.
People churn: Culture and key talent drive or block synergy capture. Tie retention pay to post-close milestones.
Liability migration: Environmental, cyber, and consumer claims can appear post-close. RWI does not cover forward-looking items or known issues.
Remedies and RTFs: Divestitures or conduct obligations can dent the thesis. Reverse termination fees and HOHW covenants allocate risk but reduce flexibility.
Earnouts: Define EBITDA or revenue cleanly; set operating covenants to avoid disputes.

Greenfield risks

Permitting and community: Appeals or injunctions can slip timelines.
Supply chain health: Long-lead items, FX, and EPC solvency affect delivery. Performance security and parent guarantees reduce exposure but do not eliminate it.
Technology maturity: Emerging tech brings uncertain degradation and performance.
Revenue exposure: Merchant exposure requires realistic capture rates and hedging.
Lender step-in: Weak direct agreements leave sponsors exposed if EPC or O&M underperform.

Comparative decision drivers that stick in IC memos

Time-to-revenue: Acquisitions can produce cash within months if approvals are manageable. Greenfield typically takes 12 to 36 months to COD.
Certainty vs. option value: Greenfield can stage spend and preserve options. Acquisition fixes the platform on day one.
Regulatory friction: Heavy antitrust or FDI risk points to greenfield or JV with a non-overlapping partner. Tough sector permits point to buying a permitted platform.
Synergy vs. clean-sheet cost: If value resides in customers, licenses, or entrenched distribution, buying wins. If cost position, customization, or architecture drive edge, building wins.
Financing profile: Acquisitions enjoy established cash flows and more leverage. Greenfield leans on construction financing with tighter controls; policy credits can level the field.

Structures and legal choices that reduce friction

Acquisition chains: Bidcos and merger subs can ring-fence liabilities. Upstream guarantees and tax-efficient chains manage withholding, treaty access, and thin-cap rules.
Project SPVs: Greenfield uses limited-recourse SPVs. Security trusts or collateral agents hold security. Strong separateness reduces contagion to sponsors.
Governing law: New York or English law often governs financing and major contracts; local law governs security, permits, and land. Arbitration is typical for EPC and cross-border disputes.

Credit views and constraints: under the lender’s lens

Acquisition leverage: Financing today often has maintenance covenants only at the RCF, with tighter incurrence tests. Ratings focus on realistic synergy and integration costs in pro forma metrics.
Project finance tests: Lenders require independent technical and insurance reviews, downside resilience, and completion tests before distributions. Completion guarantees and robust LDs buy leverage during construction.

Build a simple debt schedule for each path to track maturities, covenant headroom, and interest rate sensitivity. In greenfield waterfalls, verify how cash sweeps interact with distribution tests and reserve accounts.

Execution timelines and owner stack

Acquisition timeline

Weeks 0-2: NDA, request list, preliminary synergy model, antitrust and FDI scoping.
Weeks 3-6: IOI, management sessions, commercial and QoE work, financing term sheets, RWI broker engagement.
Weeks 7-10: Exclusivity, SPA negotiation, confirmatory diligence, financing commitments, regulatory filings.
Sign to close: 30 to 180 days for approvals, consents, TSA playbook, close readiness, syndication.

Owners include the sponsor deal team, M&A counsel, financing and regulatory counsel, tax, accounting and QoE, technical advisers, lenders, and the RWI insurer.

Greenfield timeline

Months 0-3: Site control, permits roadmap, interconnection application, feasibility, stakeholder mapping, EPC soundings.
Months 4-8: FEED, EPC and equipment RFPs, offtake solicitation, term sheets, lender education.
Months 9-12: Finalize EPC and offtake, credit approvals, independent engineer and insurance diligence, financing documents.
Months 13-36: Construction to COD, testing and commissioning, term conversion, ramp and monitoring.

Owners include the sponsor development team, EPC, owner’s engineer, environmental and permitting teams, project finance counsel, lenders, a model auditor, and offtakers.

Stop tests: when to pivot

Acquisition stop tests

Remedies erase value: Antitrust remedies would cut the core rationale.
Unworkable carve-out: The business cannot stand alone within 6 to 12 months and TSA terms are inadequate.
Unfixable diligence: Issues such as uninsurable cyber events or environmental exposures without caps.
Key consents absent: Change-of-control consents on mission-critical contracts are unavailable on workable terms.

Greenfield stop tests

Permits at risk: Discretionary permits face a high likelihood of appeal or injunction without credible mitigation.
EPC depth thin: The EPC market is shallow for the tech or region, or performance security is uneconomic.
No bankable offtake: Merchant volatility defeats leverage in downside cases.
Policy dependent: Credits or grants are speculative and the case does not clear without them.

Scenario playbook and hybrid paths

Regulated sectors: Buy a licensed platform with operating history to accelerate timing and credibility.
Technology rollouts: Build to avoid technical debt; buy a customer book only if churn risk is contained and cross-sell is real.
Bankable infrastructure: Greenfield competes, especially with credit monetization or availability payments. Premiums on de-risked assets can compress buy yields below build returns.
Cross-border scrutiny: JV with a local partner or locally controlled greenfield may clear where a full buy would not.

Original angle: consider acquire-to-build. Buy a smaller platform for permits, people, and customer credibility, then add greenfield capacity behind it. This hybrid often reduces FDI and remedy risk while preserving design control and access to offtake. The trade-off is governance complexity that you can tame with board supermajorities on EPC changes and budget.

Numerical templates and modeling checkpoints

Buy case: EV 500, EBITDA 50, synergies 10, one-off cash costs 15, integration capex 10, tax 25 percent. Leverage 6.0x at 8 percent cost, equity 40 percent targeting 20 percent gross IRR. A 30 percent synergy shortfall cuts unlevered value by about 3.0x EBITDA; a six-month TSA extension costs 1 to 2x EBITDA.
Build case: Capex 400 over two years, IDC 35, EBITDA 70 at COD plus one, maintenance capex 5, tax 25 percent, financing 65 percent at 9 percent. A six-month slip reduces NPV by lost cash plus incremental IDC; a 10 percent overrun raises required COD EBITDA by about 4 to hold IRR.
DCF sanity check: Use a mid-case DCF to cross-check headline multiples against cash timing and terminal assumptions.

Governance and information rights

Buy with rollover: Shareholder agreement sets reserved matters, drag and tag, non-compete, non-solicit, and reporting. Board control sits with the sponsor; minority vetoes cover extraordinary items.
Greenfield JV: Lock budget approval, EPC change-order authority, and cash waterfall integrity. Lender consents overlay changes to material contracts, budgets, and distributions.

Execution discipline that protects IRR

Acquisition

Own the synergies: Require line-item “fact packs” with accountable owners. Use clean rooms to test revenue synergy with customer-level data.
Align the SPA: Match interim operating covenants to the integration plan so value is not choked before close.
Deep diligence: Use RWI to narrow disputes but do not lighten diligence.

Greenfield

Fix scope early: Resist creep and lock specifications.
Hedge inputs: Hedge commodity exposure or embed pass-through clauses.
Control changes: Set tight change-order governance and direct agreements that let lenders and sponsors step in without delay.

Board-ready checklist

Regulatory thesis: Confirm antitrust or FDI outcomes will not erase the case. Pre-wire remedies or pivot to build.
Execution plan: Buy path: quantify synergy ranges, hard-wire TSA scope and SLAs, match debt terms to cash conversion. Build path: lock permits on the critical path, EPC depth, and offtake bankability.
Accounting and tax: Confirm goodwill versus amortizing intangibles, basis step-up, 163(j) limits, and credit eligibility.
Lender optics: Fit governance to risk with distribution tests and step-in rights. Use an earnings bridge to keep the story consistent across diligence and financing materials.
Stop tests: Run base and downside sensitivities. If one fails, pause and re-scope.

Closing Thoughts

Acquisition wins when speed, approvals, and moats such as licenses, captive distribution, or proprietary data favor buying now. Greenfield wins when cost position, process control, or architecture define the edge and policy support shifts the capital stack. Model both, wire governance to the risks you choose to take, and make sure the first dollars you spend move you toward bankable cash, not optionality you cannot exercise.