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

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.