Do Banks/Institutions cover M&A closure expenses?

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October 12, 2021

by a searcher from Washington University in St. Louis in Claymont, DE 19703, USA

Hello,

I am a principal of a firm that aims to grow rapidly in the Tech space. We have secured a few fantastic deals and we are ready to begin the acquisitions.

However, we are facing issues in covering our initial M&A Accounting and Legal Due Diligence costs.

We are very confident of paying back the fees immediately after one acquisition completes, and hence do not want to dilute equity. I am looking at Debt/Equity financing if possible.

Would banks be able to provide initial funds for the same? Do we have to approach Venture Capital institutions? Please let me know your thoughts and experiences.

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Reply by a searcher
from University of Virginia in New York, NY, USA
Fees can be rolled into a transaction and can be reimbursed to whomever fronted the capital. It can also be treated as part of the equity injection requirements for SBA loans. The best option would be to hold off on spending significant money until you have exclusivity. You can add a clause that has breakage fees payable if seller fails to close / not payable if you back out. In my transaction I stipulated with the seller that if the QofE fell materially short of what he represented EBITDA to be he would be on the hook for my fees up to $50k. It’s a great diligence tool and trust building moment with an owner. Armed with that agreement it is much easier to approach friends and family if you do not personally have the capital.

Bottom line is that there are risks inherent to any deal. Be smart about when you spend real $$$. If you are not comfortable taking that risk perhaps you need to wait until you have the capital to lose if a deal falls apart.
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Reply by a searcher
from University of Illinois at Urbana in Chicago, IL, USA
In almost all cases, no.
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