Home More The Ultimate Guide to the M&A Process

The Ultimate Guide to the M&A Process

by Rohan Mathew
The Ultimate Guide to the M&A Process

Since 2000, there have been over 790,000 mergers and acquisitions (M&A) around the world. The known value of these transactions surpasses a colossal $57 trillion.

Mergers and acquisitions have helped countless firms reach the very pinnacle of success. It’s the reason why most of the largest firms in the world have teams of experts whose only job is to seek out viable acquisitions. A well-implemented mergers and acquisition strategy can prove extremely fruitful for your business.

But exactly what is M&A? How can it benefit your company? What does a successful M&A process look like?

Read on to learn more.

What Is M&A?

The term mergers and acquisitions (M&A) describes the consolidation of two or more business entities and assets through various financial transactions. There’s a series of steps included in the merger and acquisition process, from planning to closing and implementation.

The entire process can take anywhere between three and six months. However, note that some M&A deals can take years to execute, depending on how complex the deal is. For tracking purposes, draft a timeline for the deal, but include some time for unexpected delays.

It’s always a smart move to use an M&A advisor, especially if this is your first M&A process. A professional can prove a huge help when it comes to merger and acquisition planning and execution. They can also help you anticipate and overcome hurdles along the way.

Steps in the M&A Process

If you’re going to be involved in mergers and acquisitions, you need a well-crafted M&A deal process that you’ll be following. Here’s what that process should look like:

Develop Your Strategy

Come up with a strategy that involves all the essential aspects of your M&A deal. That means you need to identify the motivation behind the M&A transaction, as well as what type of transaction you want to conduct. You should also determine how much capital you’re willing to spend on this transaction. 

Identify and Contact Targets

Once you’ve developed an M&A strategy, it’s time to identify potential targets that fit your criteria. Make a list of every potential target in the market, and contact the targets to express your interest. The goal here is to get more information about your targets and assess their level of interest in the transaction.

Exchange Information

Once you’ve had a fruitful conversation with a target and each party has shown an interest in proceeding with the transaction, it’s time to start the documentation process. 

The initial documentation will include the submission of a letter of intent (LOI), as well as signing confidentiality documents. Once that’s done, you can then exchange information relevant to the deal, including company history and financials. 

Valuation and Synergies

The next step involves assessing your target and the deal to see how it would benefit your shareholders. 

If you’re the seller, you want to determine the best price so that your shareholders gain from this transaction. On the other hand, if you’re the buyer, you want to determine the extent of the synergies that you can gain from this deal, particularly in terms of increased market power, cost reduction, and so on.

Offer and Negotiation

Once you’ve completed your valuation and assessment of the target, it’s time to submit an offer to the seller. You could make this offer in cash or submit a stock offer. 

The target will analyze your offer and either accept it or negotiate a higher price. Note that this step tends to take a longer time, especially where neither party is in a hurry to seal the deal. 

Sometimes, this step is slowed down by competition, especially if your target is an attractive business entity with multiple bids from different interested buyers. 

Do Due Diligence

Once the negotiations are over and your final offer is accepted, it’s time to do due diligence on your target. You’ll need to thoroughly review all aspects of the company, including its products or services, client base, human resources, financial accounts, and so on. 

This step aims at ensuring that there’s no discrepancy in the information you based your offer on. 

What happens if you notice discrepancies during your research? You can opt-out of the deal or revise your bid to justify the new information.

Draft the Purchase Agreement

If everything has gone smoothly thus far, including approvals by the government, it’s time to draft the final purchase agreement. 

Generally, the purchase agreement outlines the amount of cash or stock you’re giving the target shareholders. Other details in the purchase agreement include the timeframe for making the payment.

Closing the Deal

As soon as both parties have finalized the purchase agreement, the next step is to close the deal. Each party signs the deal closure documents, with the buyer going on to assume control of the target. The management teams of both entities then work together, integrating into one merged entity. 

Execute the M&A Process Successfully

Mergers and acquisitions happen all the time, helping business entities grow significantly within the same industry or expand into other industries. By understanding the M&A process, you can make your transactions more hassle-free, saving both entities much time and unnecessary headaches.

Are you interested in reading more great content on mergers and acquisitions in today’s business world? Please, keep visiting our blog for our featured articles.

You may also like

Leave a Comment