LEGAL EAGLE SPOTLIGHT There are good reasons to expect that mergers and acquisitions activity for privately held businesses will increase in 2025 and the following years. Private equity firms are adjusting to the new normal of higher rates for longer. They need to deploy capital to achieve sufficient returns for their investors. Further, business owners belonging to the baby boomer generation will continue to retire. If the next generation in the family doesn’t want to take over the business, the retiring owners look to sell the company. All of this means banks who finance businesses are more likely to be involved in the purchases and sales of those businesses. For the most part, the due diligence and loan documentation for financing a business being acquired is the same as financing a business with continuous ownership. The purchase and sale component, however, adds additional parties and complexity to the overall transaction. The aim of this article is to point out some of the extra layers and items to watch for when financing an acquisition. Types of Transactions An owner looking to sell their company has two basic options: sell the equity or sell the assets. Buying equity means buying both the assets and the liabilities. Because a buyer doesn’t usually want to assume liabilities, asset purchases are more common. With an asset purchase, the buyer can take a more surgical approach in an attempt to acquire only the “good” assets, leave any risky and unnecessary assets behind, and avoid assuming existing liabilities. There are different types of buyers too. Some buyers are existing operating businesses acquiring another company as a means of growth. If you are already lending to the acquiring company, you will be concerned with how folding in the newly acquired business will affect the cashflow and profitability of your client. Will the increased size of the business require a larger credit facility? Private equity firms make it their business to acquire other businesses. If you are financing an acquisition by a private equity firm, ask them about their plans for the business. Is it a strategic Clearing the Hurdles to Financing an Acquisition Tips for Successfully Financing Acquisitions By Brian Devling, Spencer Fane The Show-Me Banker Magazine | 11
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