Career Development

A Guide To the M&A Process

May 20, 2021

The M&A process includes all steps involved with mergers and acquisitions between two companies from beginning to end. Understanding the actions both buyers and sellers take to close a deal can make the process clearer. It can also help you decide if your company could facilitate a partnership with another in this capacity. In this article, we discuss what the M&A process is, learn the roles that exist within it and list the responsibilities each entity takes to make a deal.

What is the M&A process?

The M&A process stands for the merger and acquisition process, which are the steps used to consolidate multiple business groups and assets through financial transactions. Companies may pursue an M&A for multiple reasons, such as to diversify their portfolio, transfer resources, enter a foreign market or make more money. Factors to consider within the M&A process include:

  • Financing: The method or methods used to pay for the M&A process

  • Competition: Other entities that may submit bids for the M&A process

  • Closing date: The designated timeline to achieve a deal

  • Market conditions: External forces outside of a company's control that affect the M&A process

  • Laws: Legal obligations and regulations required to complete a deal

Related: Pros and Cons of Business Mergers and Acquisitions

What roles exist in the M&A process?

There are a variety of different professionals who may contribute to the M&A process. They include:

  • Chief executive officer (CEO): The person who signs the paperwork for the deal and decides about the risks and rewards of the merger or acquisition

  • Chief financial officer (CFO): The person who evaluates the financial risks and rewards of a transaction, manages those aspects and reports to the CEO

  • External consultant: A third-part adviser who helps with valuation by removing emotional bias and focusing on objective numbers

  • Legal counsel: A representative who ensures both parties meet all legal expectations for a transaction

Related: Mergers and Acquisitions: Definition, Types and How They Work

What are key terms associated with the M&A process?

Throughout the M&A process, advisers and legal representatives may use professional jargon to refer to assets, steps and phases within the transactions. Some important definitions to know include:

  • Acquired or target company: The entity that is purchased by another

  • Acquiring company: The entity that facilitates the purchase of another

  • Conglomeration: A merger between companies that exist in different markets and don't share ties in terms of products or services

  • Discounted cash flow (DCF): A valuation model where you estimate future cash flows using a discounted rate to make projections about a company's monetary worth

  • Forward merger: A straightforward deal where the target company becomes part of the acquiring company and ceases to exist as its own entity

  • Friendly acquisition: A situation where the acquiring company purchases the target company with approval from its shareholders and board of directors

  • Hostile acquisition: A situation where the acquiring company makes an offer to the target company's shareholders without consulting its board of directors

  • Joint venture (JV): A formal or informal partnership between two or more businesses with the purpose of completing a project

  • Leveraged buyout (LBO): An acquisition where the acquiring company purchases the target company with a sizeable amount of borrowed money

  • Market-extension merger: A merger that takes place between two companies that have similar products in different markets

  • Product-extension merger: A merger that takes place between companies that offer similar products in the same market with the purpose of growing the customer base

  • Statutory consolidation: A situation where both merging companies legally cease to exist and they instead form a new company

  • Statutory merger: A situation where one of the merged companies remains in existence for legal purposes

  • Synergy: The potential financial benefit from combining two businesses

  • Triangular merger: A situation that involves a third party, such as a subsidiary of the buyer, to help complete the deal

Related: What Is a Merger? A Guide To Company Mergers

What are the buyer's steps to the M&A process?

When proposing to merge with or acquire another company, the buying entity may engage in steps such as:

1. Develop an overall strategy

The CEO and other managers of the buying company decide how they want to pursue an acquisition or merger. They may discuss what they hope to accomplish by combining with or purchasing another company.

2. Set the criteria

The necessary collaborators make a profile about what their ideal merger or acquisition company looks like. They may consider what the target company adds to their own entity in terms of its size, profit margins, products, customer base or culture. This checklist helps during the research process when looking for companies to approach.

3. Search for companies

The CEO or an assigned adviser looks for companies that fit the criteria profile that could be suitable targets for a merger or acquisition. They may also perform a brief evaluation with available data to determine which companies could be the best assets to their current brand.

4. Plan your connection strategy

The CEO of the acquiring company contacts a representative from the target company through a letter of intent. This document expresses interest in a merger or acquisition and summarizes the proposed deal. Within this letter, the CEO may also ask for more information about the target company to fill gaps in research or to get a better understanding of the potential benefits from a partnership.

5. Perform valuation

Valuation is the process that takes place after the target company provides the buyer with their sensitive business information, like their financials. Engaging in this activity allows the acquiring company's leadership to evaluate the value of each asset individually before the transaction takes place. CEOs may perform a SWOT analysis—which stands for strengths, weaknesses, opportunities and threats—on the target company during this stage. They may hire a third-party adviser to perform this step or give advice about best practices.

6. Negotiate

After valuation, representatives from the buying company chooses if they want to continue to pursue a merger or acquisition opportunity with the target. If so, they create an initial deal document and share it with the target. After both parties have reviewed the terms, they can engage in negotiations to try to get more money, more assets or additional benefits from the deal. Negotiations may continue until both parties are happy with the proposed terms of sale.

Related: Understanding the Process of Negotiation

7. Perform due diligence

Due diligence is the process where the representatives of the buying company and their advisers evaluate the offer and make sure they've addressed and satisfied any and all details before a transaction becomes final. They may create financial models, conduct operational analysis and review the culture fit of both entities again during this step. Buyers often list the length of the due diligence processes in the letter of intent, and it's common for it to take between 30 and 60 days after negotiations cease.

8. Create contracts

Legal representatives for the buying organization write the final purchasing and sales contracts for all relevant parties to sign. They ensure the deal follows all state and federal laws concerning a business combination and that they outline the responsibilities of each party in the correct language to prevent disputes.

9. Set a financial strategy

CFOs from the buying organization adjust their initial financial plan to reflect any new terms of the final purchase agreement and sales contracts that arose during negotiations.

10. Combine entities

After both parties sign the agreements and contracts, they consider the merger or acquisition legally finalized. The buying company can then start combining the businesses in all capacities, such as assets and personnel. This can be the longest stage of the M&A process because it can take months or years to integrate finances, organizational structure, roles and other responsibilities from two separate entities fully.

What are the seller's steps to the M&A process?

The seller's responsibilities within the M&A process fall within three major categories, which include:

1. Sale preparation

Within the sale preparation phase, representatives from the selling entity may:

  • Define a strategy: Brainstorming and recording goals of a potential sale or merger
  • Compile materials: Creating a portfolio that includes documents like the confidential information memorandum (CIM) and other supplemental data for the potential buyer

2. Bidding

In the bidding phase, representatives from the selling organization can:

  • Connect with potential buyers: Potential buyers may contact the target company or representatives may correspond with their teams to start a discussion.

  • Receive bids: Interested buyers send bids to purchase or merge with the target company.

  • Meet with bidders: Set up meetings to converse with management from the bidding companies to learn more about their needs, intent and offerings.

  • Accept letters of intent: Multiple bidding companies may send letters of intent, giving the target company a choice of a partner for their sale or merger.

3. Negotiation

During the negotiation phase, the buyers and sellers often work together through many of the steps. Some duties the sellers can perform during this segment include:

  • Negotiate with the buyers: Meet with representatives from the companies that sent letters of intent to discuss the terms of a potential deal.

  • Draft the definitive agreement: After choosing a partnering organization, create the finalizing documents with input from both parties and their legal counsel.

  • Sign an exclusivity agreement: This document states the intention to enter a deal with a specific buyer and prevents communication with other potential partners.

  • Take part in due diligence: Sellers can help shorten the due diligence process by providing the buying organization the proper documentation and being available to answer questions.

  • Get board approval: After the buyer completes due diligence, the selling organization's board of directors approves the acquisition or merger.

  • Sign the final agreement: Both parties sign the final agreements and contracts to close the merger and acquisition process legally.

What are the benefits of the M&A process?

Taking part in the M&A process can help a company become more competitive in its current market. It can improve financial standing and increase business relationships, brand awareness and capacity. Engaging in a merger or acquisition may also allow a company to expand the products and services it offers to its current client base or gain new customers.

What is the M&A deal structure?

The M&A deal structure refers to the legally binding final agreements and contracts that both parties sign before closing a deal. These documents state which party receives what benefits and what the requirements for each entity in the future under this agreement. The deal structure focuses on the interests of stakeholders, financial concerns and operational methods. There are three common types of M&A deal structures, including:

  • Asset acquisition: A structure where the buyer purchases the assets of a selling company through cash transactions
  • Merger: A structure where two companies mutually agree to become a new entity and share all assets and liabilities within a new company
  • Stock purchase: A structure in which most of the seller's stock shares go to the buyer to transfer control of assets and liabilities


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