Every procedure of merger and acquisition (M&A) will be different from one deal to another. From companies operating on a small scale to larger enterprises, a different deal structure will apply because of elements like the company’s performance, time of the sale (wherein competitive dynamics and market conditions are factored in), the size of its workforce, tax implications, and many more.
Despite this variability, M&A transactions, whether involving the purchase of a target company’s shares or its business operations, typically follow a general process, which we will elaborate here. However, this process is flexible and may be adjusted based on the transaction’s complexity. In simpler M&A deals, certain stages described below may be streamlined or even bypassed entirely.
Acquiring a business is such a huge milestone. When you’re ready to buy, it means you’re set for bigger expansion opportunities. But before diving into the actual process, it would be best to educate yourself regarding what’s about to take place.
The mergers and acquisitions (M&A) process is a multi-stage endeavor. It will typically take around from six months to a couple of years until closing and full transition.
| Phase | Core Objective | Key Milestones |
| I. Strategy | Goal Alignment | Defining criteria; Identifying target sectors. |
| II. Sourcing | Target Identification | Screening; Initial outreach; NDA signing. |
| III. Evaluation | Preliminary Analysis | CIM review; Initial valuation; LOI submission. |
| IV. Execution | Verification | Due Diligence; Final negotiations; SPA/APA signing. |
| V. Integration | Value Realization | Closing; Stakeholder management; PMI. |
Preparation
Initial negotiations
The establishment of an acquisition strategy will depend on the kind of buyer, which is generally categorized into three types:
As your company grows, goals expand, and it may include using M&A as a growth avenue. Prime your company for acquisition, both in terms of management structure and cultural alignment. When both are on solid footing, and you’ve studied topics like “M&A life cycle” and “steps of mergers and acquisitions,” your next step would be to define your acquisition goals.
This is how you do it:
Choosing the valuation methods is best handled by professionals such as CPA, appraisers, investment bankers, and business brokers. Normally, these professionals choose multiple methods to ensure that the valuation is unbiased, considers internal and external factors, and has a strong positioning for negotiations.
Step 1: Preparation
The scope of the preparation process is the establishment of acquisition goals. As mentioned previously, there will be objectives as an organization (acquisition as an individual, strategic, or financial buyer) and goals regarding what type of company to acquire.
Step 2: Initial Negotiations
You’ve selected a potential target company. What comes next? It’s finally time to initiate early-stage talks to see whether the two companies can strategically synergize and align. During this phase, discussions center on the exploration of how the acquisition could enhance business objectives. Both parties generally sign non-disclosure agreements (NDAs) as the seller needs to protect the target company’s confidential data. Afterward, a Confidential Information Memorandum (CIM) will be provided to the acquirer.
Are you the only buyer in discussion with the seller? It’s likely that the M&A due diligence commences so that the seller can address issues, including the following:
When multiple buyers compete, these discussions often follow due diligence. A letter of intent (LOI), usually non-binding, is commonly drafted to outline initial terms.
Step 3: Conducting M&A Due Diligence
This step re-confirms the target’s worth and is an opportunity to spot any red flags. If you’re the only buyer, your advisors typically handle this. There are cases wherein the seller takes the lead with their own due diligence in an effort to smooth out the sale, discover problems that may impact their asking price, or re-establish the guarantees they can offer.
Due diligence is never one-sided. Negotiations take place after you scrutinize the target company’s financial statements, tax implications, possible liabilities, and pending litigations. Naturally, the sell-side will also deliver supporting statistics and documents that defend their stance regarding the purchase price. In other words, due diligence is also the time to check and negotiate as issues arise in areas including the following:
What’s a thorough due diligence process? It is an observation of the target company’s various aspects to see whether the deal supports your goals and avoids costly surprises.
Step 4: Final Negotiations and Closing
You’ve concluded the due diligence stage with the buyer. What comes next is hammering out the final details so you can finally seal the deal once you’re convinced it’s a worthy investment. The buyer, together with the advisory team, will review the due diligence findings to weigh their impact on the transaction.
If you’re still ready to move forward, you’ll dive into final negotiations with the seller to lock in the terms. As you set a clear method to determine the final purchase price, you hash out warranties, indemnities, and any limits to include in the final agreement with the seller.
These terms go into either a Share Purchase Agreement (SPA) or an Assets Purchase Agreement (APA), depending on whether you’re buying the company’s shares or its business assets.
Stakeholders have the power to influence the deal and what happens post-transaction. With the buyer changing the status quo, it’s important to step in and manage expectations and diverse interests for the transition to run seamlessly.
Within the merger and acquisition process timeline, a necessary step is stakeholder management. Determine who the key people are in the target company, which may include:
First, map all groups and assess their interest and impact on the deal. Make the evaluation organized using M&A tools. Taking priority are high-influence stakeholders (e.g., shareholders), whom you should engage with directly. On the other hand, clients and employees should be informed promptly to keep their trust. When you communicate regularly with a message that makes stakeholders receptive, you will be met with less resistance. Moreover, you can further the chances of success across the M&A timeline.
Communicate constantly to lessen stakeholders’ worries. You can do so through a mix of methods that include the following:
Organize them according to the mode of communication preferred by the group. For example, higher-ups want frequent updates face-to-face. On the other hand, the easy access of progress reports and feedback opportunities via a portal or emails may be preferred by employees.
Immediately communicate all major decisions that’s bound to affect the stakeholders. When they know what’s constantly happening, you can easily win their trust and lessen M&A disruptions. They need to be engaged for the post-closing transition to be smooth.
Share progress through the preferred methods we’ve discussed above. Above all, resolve concerns fast by answering questions or tackling issues promptly to maintain confidence in the deal. Track feedback from each group so that nobody is overlooked.
Going through the M&A process steps is no easy feat, but that doesn’t mean you cannot set a closing date. Considering factors such as size and complexity, set schedules within the merger and acquisition timeline.
Remember that there is no fixed mergers and acquisitions timeline. But since multitudes of businesses have gone through the mergers and acquisitions process steps already, there’s no guessing game necessary. You can use industry resources online as references or plan it with your advisory team.
The most important M&A steps are those that move the deal forward. It is also where major decisions are made. These include the following mergers and acquisitions steps:
Take a look at these averages observed by industry experts:
Purchase price allocation (PPA) and valuation are two necessary accounting processes within the stages of mergers and acquisitions. Let’s take a look at each concept in the following sections.
Purchase Price Allocation (PPA) involves distributing the cost of acquiring a company across its assets and liabilities, as required by ASC 805 under US GAAP.
It promotes transparent and precise financial reporting by assigning fair values to the following:
Improper allocation risks regulatory issues, tax complications, and inaccurate financial statements.
Putting a value on a company sounds straightforward, but pinning down that one number to kickstart negotiations takes a valuation method—or a couple. Here, we’ll break down the approaches pros typically use. Brokers will explain which method they pick and why it fits.
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