Understanding the M&A Process Steps

Sep 29, 2024

Overview of the Mergers and Acquisitions (M&A) Process

Introduction

  • Purpose: High-level overview of the M&A process
  • Importance: Understanding the process helps manage client expectations, especially if they are new to M&A

Step 1: Acquisition Strategy

  • Determine the strategic goals:
    • Enter new markets
    • Acquire new products
    • Expand geographically
    • Acquire competitors to increase market share

Step 2: Search Criteria

  • Detailed criteria are essential:
    • Business scale, location, ownership, market position
    • Customer base and concentration
    • Financial criteria: revenues, profits, cash flow, balance sheet
    • Valuation and price
  • Create a long list of potential companies

Step 3: Screening

  • Screen the market to identify companies that meet criteria
  • Example: IT services business in Germany

Step 4: Initial Approach

  • Approach shortlisted businesses
  • Determine if they match the desired business type
  • Assess owner’s motivation to sell

Step 5: Valuation

  • Obtain detailed financial information with confidentiality agreements
  • Value the business on a standalone basis
  • Consider synergies but don't pay for them
  • Use various valuation techniques (e.g., discounted cash flow, comparative numbers)

Step 6: Negotiating the Deal

  • Detailed discussions with a few businesses
  • Establish key deal points
  • Non-binding Letter of Intent (LOI)

Step 7: Due Diligence

  • Detailed review of the business
  • Conducted by specialist advisors (e.g., accountants, lawyers)
  • Ensure full disclosure of all aspects of the business

Step 8: Sale and Purchase Contract

  • Prepared in parallel with due diligence
  • Based on LOI
  • Includes conditions, disclosures, representations, and warranties

Step 9: Acquisition Finance

  • Organize finance well in advance
  • Consider payment methods: cash, shares, fundraising, or debt-raising

Step 10: Closing and Post-Deal Implementation

  • Sign documents, transfer consideration, and close the deal
  • Execute post-deal implementation plan

Conclusion

  • M&A process is complex but follows a logical sequence
  • Importance of experience and anticipating problems
  • Deals can fall through for various reasons
  • Key to success: motivated sellers with a strong reason to sell