Overview of the M&A Process

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The mergers and acquisitions (M&A) process has many steps and can often take anywhere from 6 months to several years to complete. In this guide, we’ll outline the acquisition process from start to finish, describe the various types of acquisitions (strategic vs. financial buys), discuss the importance of synergies (hard and soft synergies), and identify transaction costs. To learn all about the M&A process, watch our free video course on mergers and acquisitions.

10-Step M&A Process

If you work in either investment banking or corporate development, you’ll need to develop an M&A deal process to follow. Investment bankers advise their clients (the CEO, CFO, and corporate development professionals) on the various M&A steps in this process.

A typical 10-step M&A deal process includes:

Develop an acquisition strategy – Developing a good acquisition strategy revolves around the acquirer having a clear idea of what they expect to gain from making the acquisition – what their business purpose is for acquiring the target company (e.g., expand product lines or gain access to new markets)
Set the M&A search criteria – Determining the key criteria for identifying potential target companies (e.g., profit margins, geographic location, or customer base)
Search for potential acquisition targets – The acquirer uses their identified search criteria to look for and then evaluate potential target companies
Begin acquisition planning – The acquirer makes contact with one or more companies that meet its search criteria and appear to offer good value; the purpose of initial conversations is to get more information and to see how amenable to a merger or acquisition the target company is
Perform valuation analysis – Assuming initial contact and conversations go well, the acquirer asks the target company to provide substantial information (current financials, etc.) that will enable the acquirer to further evaluate the target, both as a business on its own and as a suitable acquisition target
Negotiations – After producing several valuation models of the target company, the acquirer should have sufficient information to enable it to construct a reasonable offer; Once the initial offer has been presented, the two companies can negotiate terms in more detail
M&A due diligence – Due diligence is an exhaustive process that begins when the offer has been accepted; due diligence aims to confirm or correct the acquirer’s assessment of the value of the target company by conducting a detailed examination and analysis of every aspect of the target company’s operations – its financial metrics, assets and liabilities, customers, human resources, etc.
Purchase and sale contract – Assuming due diligence is completed with no major problems or concerns arising, the next step forward is executing a final contract for sale; the parties make a final decision on the type of purchase agreement, whether it is to be an asset purchase or share purchase
Financing strategy for the acquisition – The acquirer will, of course, have explored financing options for the deal earlier, but the details of financing typically come together after the purchase and sale agreement has been signed
Closing and integration of the acquisition – The acquisition deal closes, and management teams of the target and acquirer work together on the process of merging the two firms