Merger & Acquisition

The Mergers and Acquisitions (M&A) process is the process by which two companies merge or acquire. An M&A process can take anywhere from six months to several years, depending on the transaction. It is important to work on schedule but be aware that delays may occur.

Merger: An agreement between two companies to unite as a new company is called a merger.

Acquisition: In contrast to a merger, an acquisition occurs when one company purchases another company and its assets.

What will be the stages of that process?

Let’s read on to find out what both the seller and the buyer need to prepare.

Steps on the Buy Side of M&A

1. Set an acquisition strategy.

As a buyer, you first need to set a strategy. What are the benefits you hope from buying another company? You need to consider current market situation, your financial situation and future plans.

2. Set M&A search criteria.

Second, you need to create an M&A profile. What should be provided by this company? Company size, financial position (profit), product or service, customers, and other relevant information must be considered. This information will be also scrutinized during Valuation and Due Diligence phases.

3. Search for potential target companies.

You can now start looking for ideal companies. A brief evaluation of potential companies should be performed after careful data collection.

4. Start acquisition planning.

At this stage, you select one or two companies you want to buy and start contacting the representatives of those companies. After selection, you may send Letter of Intent (LOI) to express interest and seek more information that you need in valuation.

5. Perform Valuation.

Valuation is one of the important steps in the M&A process. Target Company will provide the buyer with business information (especially financial information).

On the buyer side, the value of the company can be evaluated as a stand-alone company and as potential merger or acquisition. It is common to hire independent consultant for evaluation. In addition to target company’s financial position, you must also consider culture fit, external conditions that might affect the success of the deal, timing and other forms of synergy. There will be many criteria before we decide valuation models that can assist by independent consultants.

6. Negotiate and sign the deal.

This step is the “go / no go” time to decide. Using the valuation models, issue an initial deal and present it to the target company. After which the negotiation period will begin once the agreement has been signed by both parties.

7. Perform due diligence.

In M&A, due diligence refers to the evaluations you perform to ensure every detail is in order before the transaction is finalized. At this stage, the buyer should perform financial modelling and operational analysis and assess the cultural fit of both businesses. The LOI normally provides the ballpark for the due diligence period (30-60 days), but the schedule may vary depending on the business.

8. Create purchase and sale contracts.

Once due diligence has been completed, you will need to write the final purchase and sale contracts, including stocks or asset sale. Once the parties have signed the contracts, the deal is deemed to be closed.

9. Create the final financing strategy.

Once you have analysed and created strategy around finances at this point, you may still have to make adjustments when the final purchase and sale contracts are signed.

10. Begin integration.

Once the deal is finalized, you can begin integrating of two firms. Planning for the finances, organizational structure, roles and responsibilities, culture, etc., is an ongoing effort to monitor and evaluate for many months to come.

Steps on the Sell Sides of an M&A

1. Set the strategy.

When you start a sale, you need to know what you expect from that sale, and your executive team, along with external consultants or solicitors will be looking for potential buyers. A strategy must be drawn up based on the financial and market conditions of the company.

2. Gather all necessary documents and information.

You need to gather and prepare comprehensive kit to present to potential buyers of the company. In this step, all vital information such as financial position, products and services, customers and executive marketing plans should be ready to share with your potential buyers.

3. Contact Potential buyers.

There are two ways in which a buyer can contact you or you can contact them. It is important to communicate strategically if you want to communicate with more than one buyer but do not waste time discussing unlikely candidates.

4. Receive starting bid.

Once the initial contact is completed, potential buyers will be able to review the information you have submitted and start accepting bids.

5. Meet with interested bidders.

Conduct management meeting with interested bidders to learn more about these companies intents, needs and proposed offerings.

6. Receive The LOI.

Buyers who are interested in buying, your company will express interest and send Letter of Intent. You will receive Multiple LOIs from multiple bidders.

7. Negotiate with all the buyers who submit bids.

Negotiations begin once you have received bids from interested companies. Therefore, it is important that you have all the necessary financial information before moving forward with a deal.

8. Draft the definitive agreement.

Buyers and sellers are working together to draft a final deal.

9. Enter into an exclusivity agreement.

You have now entered into an exclusive deal with the buyer. You will not be able to negotiate further and you will not be able to communicate with other buyers.

10. Help facilitate the buyers’ due diligence.

It may take more than 2 months for the buyer to complete the due diligence evaluation. But you, as the seller, can help expedite the process and prepare all documents in advance. It is also important to keep in touch through the process

so that problems can be resolved as soon as possible.

11. Get final board approval.

When the buyer has completed the due diligence and plans to move forward,

solicit the board’s final approval to proceed further.

12. Sign the definitive agreement.

Once you have signed the final agreement, the deal is closed. You have made an M&A with another company and you can start integration.

You need third party, independent consultants to involve in entire M&A process. Duration of estimated time frame will be from 3 to 6 months or can be longer.

We would be happy to assist you in entire M&A process for your business success.

Try your first step with Stratecx.