Underwriting Business Acquisitions
About This Course
This webinar examines the key risks and mitigation related to financing business acquisitions. As the Baby Boomer generation continues to retire, many small businesses are changing hands. Often these businesses are sold to relatives. This change of ownership and the resulting debt adds significant layers of risk to the entity. Specific credit analysis and risk mitigation is warranted.
Topics covered in this session
Introduction and statistics
Why are business acquisitions risky?
- Change of ownership and leadership
- Customer and supplier considerations
- Skeletons in the closet (seller withholding unfavorable information)
- Balance sheet strain – increased leverage
- Cash flow strain – increased debt load
- Collateral deficiency caused by financing goodwill
Due diligence
- Details of the purchase agreement
- Stock sale or asset sale – pros and cons
- Buyer’s character, management ability, financial strength, industry experience, etc.
- Nepotism concerns
- Seller’s motivation and involvement going forward
- Site visit
- Determining the sales price – sales price methodologies
- Handling of existing liabilities and assets post-acquisition
- Credit analysis: Day 1 balance sheet, projections, stress testing, needed working capital
- Feasibility analysis
How to Structure the Financing Package
- All parties must have a vested interest
- Buyer’s equity
- Seller financing
- Subordination
- Bank loan amount and structure
- Loan covenants
- Collateral coverage and additional sources
- SBA options
- Ongoing monitoring
- Noncompete/nonsolicitation agreements
- Legal counsel assistance
Upside
- Less bank competition given the perceived risk
- Higher interest rates
- Full relationships to include deposits and TM – requirements in the loan docs
- Untapped source of loan growth
Summary, Conclusion, and Best Practices
Who Should Attend:
- Credit analysts
- Lenders
- Loan reviewers
- Regulators
*This program does NOT qualify, nor meet the National Standard for NASBA accreditation.
Your Instructor

Joe Davis has been in the banking industry for over 25 years, primarily in commercial credit and lending roles, including serving as Chief Credit Officer of a $1.2 billion community bank. Joe has extensive knowledge of credit analysis, portfolio monitoring, and risk management. Joe earned an MBA from University of Michigan-Flint, a BA in Economics from Michigan State University, and completed the Graduate School of Banking at Colorado.
This course is covered under team memberships.
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