Banker Involvement in M&A Deals
The decision to sell a business means the owner eventually has to tell his banker of the M&A transaction or pending transaction. The first step is to review the loan covenants for any guidance as to when the bank needs notification.
Barring any specific requirements (such as Seller alerting the bank when he hires an intermediary to sell the business), the right time to make the announcement often depends on whether the company in good financial health.
If the company is in good shape, the announcement of a possible sale probably won’t trigger any warning signs in the banker’s eyes, so Seller can sensibly wait until he’s accepted an offer from Buyer (usually in the form of a signed letter of intent, or LOI).
The banker’s main concern in a business sale is the loss of the credit; the new owner probably has its own banking relationships. Although such a loss is unfortunate for the banker, that shouldn’t be Seller’s concern. As harsh as it may sound, the guiding principle in this situation is, “Don’t let someone else’s problem become your problem.”
If a company is challenged, the news of a potential sale can cause the banker to get nervous about the company’s prospects, and by proxy, the credit extended to the company.
As Seller, you should speak with the banker in a very frank and honest manner. Selling a troubled company actually means the banker has a better chance of being repaid than if the company were to simply shut down.
Remind a nervous banker that calling the company’s loan right now will kill the company; giving the company some time to conclude a deal will result in the bank getting its dough.
Don’t panic if a nervous banker calls the loan in the wake of learning about the potential sales transaction. Talk to the banker. Ask for an extension or a waiver, but don’t let the calls from the banker go unanswered.