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Financing a business acquisition: bank, vendor loan and security

Acquisition financing in Austria: equity, bank acquisition loan, mezzanine and vendor loan, security package, ranking and interplay with the SPA.

BRANDAUER Rechtsanwälte
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BRANDAUER Rechtsanwälte

Salzburg law firm for corporate, company and transaction law

Every transaction is handled by a coordinated team of lawyers, legal staff and specialists. In company acquisition matters we look at structure, contract, tax and liability together.

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30 June 2026 · Mag. Bernhard Brandauer, Rechtsanwalt

Acquisition financing is the silent backbone of a company purchase. Without a robust funding source even the most beautiful deal fails at closing. At the same time the chosen structure determines the allocation of risk between buyer and seller, the room for manoeuvre in a downturn and the tax effects of the years to come.

This post explains how a company acquisition is financed in Austria. The focus is on the typical combination of equity, bank acquisition loan, mezzanine and vendor loan, on the security architecture of the bank, on the ranking between the lenders and on the interplay with the closing conditions in the purchase contract.

From a lawyer perspective the early alignment between purchase contract and financing decides whether closing runs smoothly. Whoever runs bank, co-shareholders and seller in parallel avoids costly surprises. The focus page on purchase price and earn-out shows how variable elements can relieve the financing need.

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Answer one or two questions on structure and security. You receive a first classification of your acquisition financing.

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01 Question 1

Is the financing structure of equity, bank funding and vendor loan settled?

A robust acquisition financing combines several layers. Setting up that mix only shortly before closing risks costly gaps.

All paths at a glance

Overview of all answers.

01

Without a calculated financing structure the deal lacks its foundation.

A modern acquisition financing typically consists of buyer equity, a bank loan as the acquisition facility, occasionally mezzanine and a vendor loan. The proportions have to be aligned so that debt service capacity, interest cover and tax effects hold.

Start early with a sensitivity calculation: what happens if EBITDA drops by fifteen percent, what if interest doubles? The focus page on purchase price and earn-out shows how variable elements can relieve the financing burden.

02

The financing is solidly set up, now the binding documentation matters.

Once structure, security and ranking are in place, the binding of the lenders to the deal has to stand. Common are a binding bank term sheet, an equity commitment letter or equity bridge from financial investors and a fully drafted vendor loan agreement. These documents create the safety net for closing.

Align the closing conditions in the purchase contract with the financing. A financing condition should only remain in narrow exceptions. How closing conditions are shaped is shown in the post on closing conditions.

03

Gaps in security or ranking lead to losses if things go wrong.

Whoever sketches security or ranking only roughly risks renegotiations just before closing. Clarify the requirements of the bank for the share pledge, assignments by way of security, debt service reserve and cash sweep. Clarify at the same time how a vendor loan ranks behind the bank and which standstill clauses apply.

In a crisis the ranking decides the value. A first assessment of your transaction is provided by our M&A transaction risk profile.

Financing layers at a glance

An acquisition financing combines several sources. Buyer equity forms the first layer and signals risk appetite to the bank. The usual range is an equity ratio between 25 and 50 percent of the purchase price, depending on sector, earnings stability and buyer profile. In private equity structures this share can be considerably higher, in MBO models lower.

The largest block is regularly the bank acquisition loan. It is granted as a senior secured loan and is collateralised by a pledge of the acquired shares, by assignments by way of security of material receivables and, where applicable, by mortgages on real estate. Mezzanine or junior loans sit between equity and the bank.

The vendor loan closes the gap when equity and bank loan are insufficient or when the seller wants to keep a stake in the future success. It works as an interest-bearing deferral of part of the purchase price. The concept is explained in the glossary.

The bank process from term sheet to drawdown

Banks work in a structured process. After a first sounding meeting they request an information memorandum, annual accounts and an integrated business plan with balance sheet, profit and loss and cash flow. On this basis a term sheet emerges with conditions, security, covenants and reporting obligations.

In the second phase the bank side due diligence follows. It concentrates on debt service capacity, sensitivities, sector risks and collateral values. An external expert is often instructed. Only after a positive credit committee comes the loan agreement with the final terms.

Before drawdown the conditions precedent must be met: delivery of all security documents, confirmation of the closing, presentation of clearance certificates. The interplay with the purchase contract is decisive. How closing conditions can be shaped is shown in the post on closing conditions.

Security, ranking and cash sweep

Banks typically secure acquisition loans with a whole bundle of instruments. These include the pledge of the acquired shares, the assignment by way of security of material receivables, pledges over bank accounts, the pledge of group receivables and the assignment by way of security of insurance claims. For real estate, mortgages are added.

Covenants accompany the loan over its life. Classic are financial covenants such as a maximum leverage ratio, a debt service coverage and a minimum equity. A cash sweep obliges the buyer to use excess liquidity for prepayments. Information undertakings secure ongoing transparency for the bank.

Vendor loans are usually subordinated. They rank behind the bank and are often subject to a standstill clause that prohibits enforcement in a crisis. The subordination is governed by an intercreditor agreement between bank and seller. The focus page on share deal and asset deal shows how this architecture varies by form of acquisition.

The central layers

What matters in each financing layer

These layers decide on stability and flexibility of the financing. Review each one before signing the loan documentation.

Layers of acquisition financing with function and typical risk
Layer Function Typical risk
Equity Buyer risk skin Signal to the bank and risk buffer Equity ratio too thin
Bank loan Senior secured facility Largest block, often bullet or amortising Strict covenants and security demands
Mezzanine Between equity and bank Higher coupon, often with an equity kicker Complex ranking issues
Vendor loan Deferral of part of the purchase price Bridge to seller participation in success Subordination and standstill in a crisis
Security package Share pledge and assignments Value protection for the bank Gaps in the security architecture

The mix of layers depends on sector, earnings stability and buyer profile. There is no rigid ratio, but proven corridors.

Caution with a financing condition: A broadly worded financing condition in the purchase contract shifts the funding risk back to the seller. Banks often accept only a narrow version. Keep the interface between loan agreement and purchase contract under tight control until closing. Booking an initial consultation (72 euro) can quickly bring clarity.

Vendor loan and seller participation in success

The vendor loan is more than a gap filler. It signals to buyers that the seller believes in the story of the company. It is often agreed at a fixed interest rate, a maturity of three to five years and a bullet or staggered repayment. Security is usually subordinated, often the seller is content with a subsidiary or group guarantee.

Vendor loans frequently come with protective rights: information rights on the economic development, consent rights on material structural decisions or termination rights for sustained covenant breaches. These rights should be sized so that they do not become competition with the bank.

An alternative to a pure loan is a seller participation with vendor loan plus earn-out or a minority stake. Which structure fits depends on trust, risk appetite and tax effect. A deeper look is provided by the post on the earn-out clause.

Frequent questions

Financing a business acquisition.

How high should the buyer equity ratio be? +

Depending on sector and earnings stability banks usually require between 25 and 50 percent of the purchase price as equity. For cyclical business models or a high share of intangibles the bar is higher. A too thin equity ratio increases debt service, pushes down the rating and noticeably increases bank financing costs.

What is a vendor loan and when does it make sense? +

With a vendor loan the seller defers part of the purchase price against interest. It makes sense when bank financing alone is not enough, when the seller believes in the development of the business or when both sides want a longer link in the transition. A maturity of three to five years with subordination to the bank loan is common.

Which security do banks demand for an acquisition loan? +

Common are the pledge of the acquired shares, assignments by way of security of material receivables, pledges over bank accounts and assignments by way of security of insurance claims. For real estate, mortgages are added. Accompanying this, the bank sets financial covenants and reporting obligations whose breach can trigger mandatory prepayment or termination.

Going deeper

Further topics around financing

Closing conditions

How closing conditions are interlocked with the financing.

Earn-out clause

How variable purchase price elements ease the financing need.

Purchase price adjustment

How net debt and working capital change the purchase price after closing.

Glossary on the vendor loan

The basic concept of deferring part of the purchase price between buyer and seller.

Topics
Acquisition financingBank loanVendor loanSecurityRanking

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