Well Capitalized

What should business owners expect from Bank Due Diligence?

M&A due diligence entails analysis from a handful of professions. While legal, financial, and tax due diligence most often come to mind, another important party in the process is the senior lender who will likely finance the transaction. We interviewed Kelly Lamirand, Senior Vice President at KeyBank to discuss what business owners should expect from Senior Lender M&A due diligence.

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Among other things, Kelly discusses:

  • How does KeyBank define the middle market? (1:28)
  • What information do senior lenders require when performing bank due diligence in an M&A transaction? (2:00)
  • Why do banks conduct due diligence? (3:49)
  • Common lending terms including revolver availability, cashflow recapture, and airball (4:31)
  • Discussion of the “5 C’s of Credit,” Character, Capacity, Condition, Collateral, Capital (8:50)
  • What debt levels are senior lenders comfortable with from a total debt perspective and a senior debt perspective? (15:41)
  • 17:30 – What factors into the interest rate senior lenders charge? Does a bank’s relationship with the private equity firm factor into pricing? (17:30)
  • What are debt covenants and what purpose do they serve? (18:34)
  • How do banks view growth capital expenditures vs. maintenance capital expenditures? (21:00)