Banking basics: top five banking tips for private company M&A deals

Navigating the banking aspects of a business disposal or acquisition is key to ensuring a smooth and successful transaction. In this instalment of our M&A tips series, we share our top five tips for managing the banking elements of a private M&A transaction, helping both buyers and sellers anticipate challenges and streamline the process.

1. Review existing loan agreements

Loan agreements often contain restrictions on asset and share transfers, change of control provisions and key man clauses. Breaching these terms may trigger an event of default or early repayment obligations. Understanding the existing banking relationships and documents is therefore critical.

Sellers should engage with their lenders early in the sale process to avoid delays in securing any necessary consents or amendments to existing documentation.

Buyers should consider whether the existing debt should remain in place post-completion. If so, they should also consider whether the post-completion structure of the company will require lender waivers or consents.

2. Identify outstanding security

Where there is debt, there is often security. Outstanding charges – such as mortgages, liens or encumbrances – can affect both the value and transferability of business assets.

Sellers should prepare to disclose all outstanding charges and look to identify any issues that could affect the transaction. As coordinating the release of security at completion can be logistically challenging, engaging with lenders at the outset is advisable.

Buyers should familiarise themselves with any restrictions or obligations in place in respect of assets which are subject to security, in order to evaluate the impact of such restrictions or obligations on the transaction or any future plans.

3. Intercompany, director and shareholder debt

Connected party debt can complicate a company’s financial profile – particularly because it is often undocumented, making the company’s obligations unclear. 

Sellers should identify all debt involving the company and its wider group, shareholders and/or directors. Ideally sellers would also ensure that all such debt is properly documented and that due consideration is given to any tax implications.

Buyers should seek to understand the arrangements and their implications, especially from a tax perspective. Buyers should also establish whether the debts will be satisfied at completion and, if so, the necessary steps to facilitate this.

4. Pre-closing considerations

Transactions can take months (or even years!) to complete. During this time, the company will be continuing to operate its business. It is therefore important for buyers and sellers to agree on what the company can and cannot do in relation to its debt position during this interim period, as misalignment can lead to disputes and delays.

Sellers should ensure that any restrictions in the sale agreement include appropriate carve-outs so the business can continue to operate effectively.

Buyers should seek to include provisions in the sale agreement which enable them to monitor the financial health and performance of the company.

5. Verify bank mandates

Bank mandates dictate who has the authority to act on behalf of the company in banking matters. This includes operating bank accounts, which is crucial for business continuity. Ensuring that these mandates are up to date and reflect the company's structure is therefore essential.

Sellers should review and update mandates to ensure they accurately reflect the current management structure.

Buyers should communicate any required changes to the mandates to reflect the post-closing structure, so that sellers can coordinate with the banks and have these implemented at completion.

Addressing these five areas at the outset allows both sellers and buyers to navigate the banking complexities of M&A transactions more effectively – ensuring a smoother process, maximising the value of the deal and avoiding potential delays.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, July 2025