Mergers and acquisitions are anything but simple. In fact, they’re one of the most complex business transactions out there. These deals can have many different stages, stakeholders, legalities, and of course — layers of bureaucracy.
The key to getting through these stages is to have a full understanding of the process. It’s good to avoid rushing things and ensure company quality and fit across the board.
Let’s look at the common workflow a merger or acquisition follows. We’ll delve into each step of the process.
Pre-Deal Preparation
Before the flurry of negotiations, it’s good to lay the groundwork. The pre-deal preparation phase is where you plant the seeds for a successful merger or acquisition.
Stages of the Pre-Deal Prep Phase
Duration: 1-3 months (estimated times)
Developing a Growth and Portfolio Strategy
- Define Strategic Goals and Growth Targets: This isn’t just about where you want to go; it’s about how you plan to get there. Defining clear goals and growth targets lays the foundation for the entire M&A process.
- Identify Potential Synergies and Market Opportunities: It’s not just about growth for growth’s sake; it’s about growth that adds value. Identifying potential synergies and opportunities can help you align the merger or acquisition with the business vision.
Conducting Market Research and Finding Targets
- Analyze Market Trends and Competition: In the fast-paced world of business, staying ahead of the curve is paramount. Analyzing market trends and competition provides insights into opportunities and threats.
- Find Acquisition Targets Based on Strategic Fit and Financials: Not all targets are created equal. Finding acquisition targets based on strategic fit and financial criteria ensures that you’re not just chasing after shiny objects. Instead, it can help with making calculated moves that align with your goals.
Assessing Financial Readiness and Securing Funding
- Evaluate Financial Performance and Liquidity: Money makes the world go round, and nowhere is this truer than in the world of mergers and acquisitions. Judging financial performance and liquidity is crucial. This can help ensure that the deal is not just feasible but also financially sound.
- Secure Financing and Funding: Where there’s a will, there’s a way, but sometimes, you need a little help along the way. Securing financing and funding ensures that you have the resources to see the deal come to fruition.
Considering the Sell-Side Perspective
- Assess strategic position and potential for acquisition: For companies potentially being acquired, understanding their own strategic position and attractiveness as an acquisition target is essential.
- Prepare financial documentation and positioning: This includes preparing financial statements, projections, and other relevant documents that showcase the company’s value and potential to prospective buyers.
- Engage advisors and negotiate terms: Sell-side advisors play a crucial role in guiding companies through the acquisition process. Engaging experienced advisors can help navigate negotiations, ensure favorable terms, and maximize value for the selling company.
- Evaluate offers and determine best fit: As offers come in, the selling company must carefully evaluate each proposal, considering not only the financial aspects but also factors such as cultural fit, strategic alignment, and potential for future growth. Ultimately, the goal is to select the offer that best serves the interests of the company and its stakeholders.
Due Diligence
Before sealing the deal, an examination of every nook and cranny is essential. Let’s delve into the main stage of due diligence, where the devil is in the details.
Stages of the Due Diligence Phase
Duration: 1-2 months
Conducting Financial, Tax, Legal, and Operational Due Diligence
- Financial and Tax: Numbers don’t lie, but they can certainly mislead. This is when stakeholders and advisors conduct a thorough review of financial statements, tax records, and projections as part of due diligence. This helps assess the value of the target company.
- Legal: Legal due diligence can help ensure there are no skeletons lurking in the closet. Reviewing contracts, agreements, and other obligations can uncover risks and liabilities that could jeopardize the deal.
- Operational: Efficiency and scalability are the cornerstones of operational due diligence. Evaluating the target company’s operations can show areas for improvement and lead to better integration post-acquisition.
Quality Control Analysis
- Valuations: Delving into the heart of the matter, valuations are more than just numbers on a balance sheet. They help find the intrinsic worth of the target company, guiding stakeholders in their decision-making process.
- Accounting Processes: Like the gears of a well-oiled machine, accounting keeps the financial engine running smoothly.
- Policy Reviews: Policies are the bedrock of corporate governance, shaping the culture and conduct of an organization.
- Market Trend Analysis: This analysis can give valuable insights into industry dynamics, competition, and emerging opportunities. This can equip stakeholders with the foresight to navigate turbulent waters.
Evaluating Risks and Potential Deal-Breakers
- Identify Risks and Mitigating Strategies: Every deal carries its fair share of risks, but it’s how you manage them that determines success.
- Assess the Impact of Risks on the Deal Structure: Not all risks are created equal. Some may be mere speed bumps, while others could spell disaster.
- Negotiate Terms and Conditions: Both parties seek to strike a mutually advantageous agreement. This should encompass aspects like purchase price, payment modalities, indemnification terms, regulatory compliance, and integration timelines.
Post-Acquisition Integration
As the ink dries on the acquisition agreement, the real work begins. Execution and post-acquisition integration should lay the groundwork for a harmonious union that maximizes value.
Stages of the Post-Acquisition Phase
Duration: 6-12 months
Setting Integration Goals and Key Milestones
- Allocate Resources and Responsibilities: Success lies in the details. Allocating resources and delineating responsibilities ensures that everyone is on the same page and working towards common goals.
- An Asterisk: Despite the term, execution is only the beginning of a successful M&A. While execution may connote finality, it’s merely the tip of the iceberg in the grand scheme of M&A.
- Develop an Integration Plan and Timeline: This involves conducting a full assessment and setting clear goals. It should factor in resources, communication, risk management, and flexibility to adapt to changes.
- Implement Changes to Org Structure and Operations: It can be tough to align company cultures and values, as well as management structures and styles. Bringing two entities together is more than just a logistical challenge.
Monitoring Progress and Adjusting Strategies
- Establish KPIs and Metrics to Track Progress: Establishing key performance indicators (KPIs) and metrics helps stakeholders gauge the success of integration and find areas for improvement.
- Review and Adjust Strategies Based on Performance: Flexibility is key in the dynamic landscape of M&A. Regular reviews and adjustments to integration strategies help with remaining agile and responsive to changes.
Conclusion
Let’s give a quick recap of what we’ve just covered.
- Acquisitions are Complex and Each Stage Takes Time: From pre-deal preparation to post-acquisition integration, the M&A process is complex. Each stage requires careful attention and consideration.
- Each Stage is Equally Important: Whether it’s defining growth strategies, conducting due diligence, negotiating terms, or integrating, every stage plays a big role in the success of the acquisition.
- Patience and Persistence are Key for Acquisitions: Successful acquisitions require patience and persistence. Rushing through any stage can lead to oversights or missteps, while a thorough approach increases the likelihood of a successful outcome.
We hope you’ve found this article valuable when learning about the stages and timeline of M&A deals. If you’re interested in reading more, please subscribe below to get alerted of new articles as we write them.
Find yourself navigating your own merger or acquisition? Please feel free to contact the Acquinox team to learn more about how we can help your deal flow smoothly.
