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A brief guide to U.S. bank financing for acquisitions
The U.S bank lending environment is currently robust but navigating the loan application process is not straightforward. Here is an outline of the lending landscape, some key elements of the process and possible post-closing requirements.
The U.S. banking world has highly sophisticated lending operations that are governed by the Federal Reserve Bank and the Federal Deposit Insurance Corporation (FDIC). In acquisition transactions the lender will usually perform a thorough and detailed underwriting of both the business to be acquired and the acquirer. U.S. banks tend to want a relationship that will continue after the loan is made, and are likely to require the acquirer to sign on for further banking services.
If the acquirer targets a lender with an existing relationship with the acquiree it can help speed up the due diligence process.
The process
When approaching financing, the acquirer needs to think like the lender and put themselves in the bank’s shoes. The acquirer must be prepared with a detailed business plan that explains the reasoning behind the acquisition. The acquirer must incorporate a three-to-five-year forecast including sources and uses of the financing. The bank will also want to see a due diligence report obtained by the acquirer, ideally prepared by a firm of certified public accountants (CPA).
Further issues to consider pre-acquisition
- The acquirer will need legal representation to negotiate the loan documents.
- The acquirer should also engage a CPA to assist in the negotiation process, particularly for negotiating financial covenants.
- Workforce management is crucial due to litigation risks and retention matters. An HR expert on the due diligence team will strengthen the acquirer’s loan application.
- An IT consultant should look at the acquiree’s existing IT structure to help the acquirer understand what further IT investment could be necessary after the deal is closed. The consultant should also review IT security for any vulnerabilities as any liability from a data security breach post-acquisition will be the responsibility of the buyer.
Post-acquisition
The lender will likely require monthly or quarterly financial statements, in addition to an annual financial statement which should be reviewed by a CPA firm.
Getting the right team together
It takes good planning and a team of experts to put together a strong presentation for a U.S. bank lender. CPAs can help guide the process as they will have established connections with bankers, lawyers, HR and IT experts.
For more information, contact:
Barry Wolfe
gish SEIDEN LLP, U.S.
T: +1 (818) 854 6100 x 240
E: bwolfe@gishseiden.com
W: www.gishSEIDEN.com
