Capital raising, M&A, and accounting best practices in financial services

Markets don’t wait for clean accounting. Deals don’t pause for indecision.  And for middle market institutions considering an acquisition, raising capital, or selling mortgage servicing rights (MSRs), the stakes are rising. Success demands operational clarity, accounting discipline, and proactive planning that begins well before any deal closes.

Just one misstep can unravel hard-won progress: a mistimed capital raise can erode value, a single accounting error can shake investor confidence, and overlooked post-close obligations can lead to compliance failures or reputational damage.

Forward-thinking firms can position themselves for clean business combination closes, strategic capital that accelerates growth, and well-timed asset sales that strengthen the balance sheet.

M&A Accounting Readiness Checklist

In mergers and acquisitions (M&A), accounting diligence is foundational to operational stability and stakeholder confidence. It’s important to get it right from the start.

Financial institutions can tighten their accounting processes and set themselves up for success with the following best practices.

✓ Start Due Diligence with Audit-Readiness in Mind: Before modeling anything, validate whether the seller’s systems include the core data fields your accounting and risk teams need. If there is missing information, flag it early. Clean data is actionable data.

✓ Define Purchase Credit Deteriorated (PCD) Criteria Upfront: PCD loans affect nearly every post-close model and disclosure. Set consistent and defensible criteria, and clearly document revisions to initial assumptions throughout the due diligence process.

✓ Normalize Risk Ratings Across Institutions: Risk ratings often differ from one institution to another. Align definitions and recalibrate as needed to support comparability before integrating ratings into models or credit mark analysis.

✓ Build an Intuitive Purchase Accounting Workbook: Your workbook should serve as a single source of truth. Connect deal values, goodwill, credit marks, PCD allocations, adjustments, and accruals in a clear, traceable flow. This allows for greater levels of precision in the review process both internally and externally.

✓ Anticipate Accrual Surprises: Scrutinize the seller’s expense history to understand what additional accruals need booking at close. Missed accruals can be challenging to address post-close.

✓ Tackle Allowance for Credit Losses (ACL) with Rigor: The business combination ACL model should be treated like any other ACL model—supportable, reconciled, and documented. Update qualitative factors, segmentations, and supporting memos to address any impact the acquisition has on the legacy portfolio and credit risk.

✓ Prepare for Sarbanes-Oxley Act (SOX) and Federal Deposit Insurance Corporation Improvement Act (FDICIA) Impacts: Acquisitions often introduce new systems and processes. Engage auditors early to define scope and avoid control gaps that delay audits or trigger costly remediation efforts.

Raising Capital with Purpose in a Volatile Market

After the first quarter of 2025, middle market firms are approaching the rest of the year with a cautious focus. Having a thoughtful capital strategy sets businesses on the right path to success. For most organizations, raising capital is often the turning point that determines whether scale remains a distant vision or becomes a reality.

The following are four strategic reasons to raise capital:

Artificial Intelligence (AI) and Automation Investments

AI is quickly becoming a core driver of operational scale and profitability. With widespread industry adoption, financial institutions are reallocating capital toward intelligent systems that lower overhead, reduce risk, and increase operational resilience.

M&A with Aligned Incentives

Growth-through-acquisition remains a key growth lever, especially for firms looking to accelerate digital transformation or absorb adjacent capabilities. Successful deals start with aligned interests, particularly when it comes to management incentives.

Diversification for Risk Management

Emerging markets, new verticals, and alternative asset classes offer powerful diversification potential. As firms rebalance their portfolios in response to tariff shocks, monetary policy, and shifting demand, raising capital becomes a tool for risk mitigation, not just expansion.

Cost Control and Strategic Resourcing

Not all capital goes toward expansion. Some of the smartest plays involve consolidations, exits from non-core markets, and cost containment, especially when they support long-term agility. These moves can free up resources to reinvest in high-performing areas of the business.

Structuring Capital Raises with Compliance and Cost Management

Before entering capital markets, firms should align their capital strategy with their future business goals. Whether pursuing equity or debt, institutions must get the details right to stay audit-ready and market-relevant. With the right information in hand, companies can move faster, think bigger, and stay one step ahead.

Questions to Ask in the Strategic Planning Stage

• How much capital is needed and why?
• How will new equity or debt affect ownership, control, and financial leverage?
• What value will the proceeds plan create?
• Does the fund source align with our strategic goals?

Debt vs. Equity

• Debt Financing: Non-dilutive but increases liabilities.
• Equity Financing: Dilutive, but often fuels aggressive growth. Related expenses (legal, underwriting, document prep) are capitalized and reduce Additional Paid-In Capital (APIC).

Manage Administrative and Compliance Hurdles

• Track Capitalizable Expenses: Misclassification can lead to financial presentation and audit issues.
• Mind Staleness Dates: Miss the cutoff for using year-end financials, and you’ll need updated Q1 statements, delaying the raise.

Annual Reporting Status

Changes in reporting status can trigger expanded disclosures or impact investor perception. This should be reviewed annually.

Selling Mortgage Servicing Rights (MSRs) Strategically: Timing, Structure, and Risk

MSRs can be powerful tools for liquidity and balance sheet management, but they introduce complexity and risk that must be carefully managed. Many institutions decide to sell part of their MSR portfolio to access immediate liquidity, restructure their balance sheet, manage risk, and better position themselves for future opportunities. However, the decision to sell has implications for earnings, volatility, and future income potential.

For institutions evaluating a potential MSR sale, here are things to consider:

• Accounting Methods
  • Amortization: MSRs are expensed over the life of the mortgage.
  • Fair Value: MSRs are remeasured at each reporting period, with changes recorded in earnings.

• Interest Rate Sensitivity: Rising rates boost MSR values; falling rates reduce them.
• Accounting Guidance: ASC 860 governs the structure, sale criteria, and recognition of MSR transactions.
• Costs and Holdbacks: Legal fees, performance-based holdbacks, and refund risks all need to be modeled and disclosed.
• Post-Sale Oversight: Track earn-out triggers, maintain audit-ready records, and measure against sale assumptions.

We Can Help

Clarity in business combinations, capital raising, or MSR sales comes from rigorous preparation, cross-functional alignment, and audit-ready documentation.

At Elliott Davis, our Financial Services Group helps institutions plan with intention and execute with precision. We focus on delivering objective analysis you can use to confidently make your next move. Download our PDF from the webinar, watch the full webinar replay below, or contact our team today.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.