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.
