Main Stages of the M&A Process

The purpose of this section is to introduce reader to the main stages in the Mergers and Acquisitions (M&A) process from beginning to end. As a rule, an M&A transaction is complicated process, which may take months, or even years to finalize. The end of the M&A process certainly continues after the final signing of agreements since acquired or merged companies should be properly integrated.

M&A Process - Preparing to Sell or Buy

Both seller and buyer should prepare before selling or buying a business. The Seller must make his/her company look as attractive as possible to the Buyer; while the Buyer must do some work to determine the proper selection criteria for the company. Presale preparations include such main items as:

1. Legal structure should be clear and in order
2. Financial reports should be audited for at least three years
3. Operational activities should be standardized and clearly structured
4. The management team should be experienced and successful

Buyers should give some thought to such key aspects of an M&A transaction such as:

1. The desired strategic fit and synergy effect that the proposed acquisition target can give
2. The desired financial parameters of the acquisition such as annual sales, capital structure, expected purchase price etc
3. The desired personnel characteristics

Both the Seller and the Buyer should form an M&A team of professionals who will lead the M&A process. The M&A team should include:

1. An accountant – to assist on the financial aspects of the M&A transaction
2. An M&A lawyer – should be experienced with the M&A transactions
3. Key members of the seller/buyer’s management team
4. Business brokers/Investment bank – to assist with finding either a buyer or a seller

In summary, buyers and sellers will benefit from preparing for an M&A transaction which will lead to a smooth M&A process.

M&A Process – Finding the Target Company

Finding the potential target from the thousands of candidates is a time-consuming process. In order to make this process more efficient the proper selection criteria should be defined. The list of possible items to consider for the initial filtering criteria:

1. Desired revenue range
2. Market share
3. Number of years in business
4. Geographic location
5. Reputation (good/poor)
6. Technology provided
7. Specific business strengths (R&D, sales, marketing, production etc)
8. Low-cost / high-price provider
9. Services or products provided
10. Industry of operations
11. Publicly traded or privately held

The main purpose of this stage in an M&A process is to narrow down the list of possible targets to a short list of the potential candidates for an acquisition.

M&A Process – The Due Diligence Stage

Due diligence is sometimes the most time-consuming and expensive stage. The purpose of due diligence is to help the buyer understand the seller’s company. Section, “Merger Due Diligence,” takes a detailed look at the due diligence process. The due diligence investigation should include such items:

1. Legal structure and ownership review, pending litigation
2. Detailed analysis of the target’s marketing and sales operations
3. Intellectual property rights review, including trademarks, patents, and other intangible assets
4. Technology and operations evaluation
5. Financial statements review for three to five years

Due diligence is a complicated and critical part of the M&A process. At this stage, the buyer determines whether the target company is worth pursuing and provides the foundation upon which a final purchase price is based.

M&A Process – Deal Financing

Buyers should prove to sellers their ability to fund the purchase so that both sides are not wasting time. Sellers should consider postponing the due diligence stage until the buyer shows its creditworthiness. Section “Deal Financing” presents various acquisition purchase financing options.

M&A Process – Negotiating and Signing the Agreements

After the due diligence stage is completed, the involved parties begin negotiating the specific terms and conditions of the M&A deal. The most important thing at this stage is to sign a legally binding agreement that makes business sense. Legal aspects of M&A transactions should be handled by the lawyers experienced in M&A negotiations and who sign such agreements on a regular basis.

M&A Process – Integration

The most interesting stage in the merger and acquisition process begins after the purchase agreement is signed. It is called Integration. Different personalities, corporate cultures, operations and technologies must merge in order to avoid future performance problems. Section “Merger Integration” looks at integration issues, which should not be underestimated.