Understanding the M&A Process: A Guide for Buyers and Sellers

May 03, 2024

Mergers and acquisitions (M&A) are an important tool for businesses to achieve strategic goals such as expanding into new markets, achieving economies of scale, or gaining access to new technology. The process of M&A can be complex and daunting for both buyers and sellers. However, with the right knowledge and understanding of the process, it can also be a valuable tool for companies looking to expand their business or exit the market.

1. The length of the M&A process

Range from six months to several years.

2. Roles and Responsibilities in the M&A Process

  • CEO: Responsible for signing off on the deal based on risks and rewards.
  • CFO: Evaluates financial risks, liabilities, and rewards, manages due diligence, and reports to CEO.
  • External Consultant: Provides an unbiased evaluation of the deal.
  • Investment Bankers: Act as financial advisors and represent either the buyer or seller.
  • Legal: Guides companies through the deal and ensures they meet legal requirements.

3. Buy-Side M&A Process Steps

1. Develop an M&A Strategy:

  • Determine overarching goals for the M&A process
  • Check for good motives for undertaking M&A
  • Ask "why are we doing this?" to address doubts
  • Refer to a guide for developing an acquisition strategy for ambitious growth plans

2. Develop Search Criteria:

  • Consider M&A criteria such as revenue, geography, industry, market, and intellectual property
  • Determine the size and economic standing of the company
  • Consider whether the acquisition would expand market share or provide access to a new market
  • Determine whether the target company is operating in the same industry or a complementary industry
  • Consider whether the target company is operating in a faster-growing segment than the acquirer's company
  • Determine whether the acquisition would give the acquirer ownership of intangible assets, such as intellectual property

3. Develop a Long List of Companies for Acquisition:

  • Use search criteria to develop a list of companies
  • Evaluate the attractiveness of each company
  • Create a shortlist of companies for acquisition

4. Contact Target Companies:

  • Contact target companies directly or through an intermediary
  • Assess the target company owner's interest in selling or entering a merger
  • Gain a general understanding of the target company's valuation expectations

5. Perform Valuation Analysis:

  • Perform a more in-depth valuation of the target company
  • Consider the operational and financial aspects of the company
  • Conduct several phone calls between both parties to the deal

6. Negotiations:

  • Negotiate terms of the deal
  • Lay the groundwork for the eventual deal
  • Assess each party's willingness to compromise

7. Letter of Intent:

  • Write a letter of intent outlining the terms and conditions of the deal, including payment conditions
  • Allow for some back and forth between buyer and seller to finalize the letter

8. M&A Due Diligence:

  • Conduct due diligence, an audit or investigation of the target company
  • Evaluate the target company's operations, human capital, tax and legal structure, and financials
  • Use a virtual data room for a more productive process
  • Use a due diligence playbook or checklist

9. Purchase and Sale Contract:

  • Use the information gained during due diligence to create an informed purchase contract
  • It may involve an intermediary to manage escrow accounts and deeds

10. Integration:

  • Begin integration as soon as possible after the purchase contract is signed
  • Implement a good change management strategy for generating value from the deal.


Sell-side M&A Process Phases

1. Prepare for the Sale

  • Define the strategy and identify ideal buyers
  • Create a comprehensive kit that presents your company to potential buyers
  • Extract information from the kit to create shorter documents for sharing with potential buyers

2. Hold Bidding Rounds

Make contact with potential buyers

  • Receive starting bids and conduct management meetings with interested bidders
  • Receive a letter of intent from interested buyers

3. Negotiate

  • Negotiate with all buyers who submit bids
  • Draft the definitive agreement
  • Enter into an exclusivity agreement with the buyer
  • Help facilitate the buyer's due diligence process
  • Solicit final board approval
  • Sign the definitive agreement to close the deal and begin integration.