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.

The length of the M&A process

Range from six months to several years.

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.

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