The Ultimate Guide to the M&A Process for Buyers and Sellers

The phrasemergers and acquisitions (M&A)refers to the consolidation of multiple business entities and assets through a series of financial transactions. Themerger and acquisition processincludes all the steps involved in merging or acquiring a company, from start to finish. This includes all planning, research, due diligence, closing, and implementation activities, which we will discuss in depth in this article.

In order to understand the key steps involved in a successful merger and acquisition, you must first learn the following key terms:

• Merger:在商界,合并是两个之间达成协议companies to consolidate functions and assets, then continue as one united company.
• Acquisition:In contrast to a merger, an acquisition occurs when one company purchases another company and its assets.
• Acquired Company:Also called thetarget company, this is the company that is purchased by another.
• Acquiring Company:This is the company that purchases another company.
• Friendly vs. Hostile Acquisition:In a friendly acquisition, the acquiring company purchases another company with the approval of the target company’s shareholders and board of directors. In a hostile acquisition, the acquiring company makes an offer directly to the shareholders without involving the target company’s board. (This is also called atender offer.)
• Conglomeration:This is a merger between companies that are completely unrelated in the market (i.e., they have no ties to each other in terms of products or services).
• Leveraged Buyout (LBO):This is an acquisition in which the acquiring company purchases the target company using a large amount of borrowed money.
• Statutory Merger vs. Statutory Consolidation:In a statutory merger, one of the merging companies remains in existence as a legal entity. In a statutory consolidation, both merging companies cease to exist legally and instead form a new, combined entity.
• Forward Merger:这是最简单的交易,the target company becomes part of the acquiring company and ceases to exist as an independent entity.
• Triangular Merger:A triangular merger involves a third party (typically a subsidiary of the buyer). In aforward triangular merger, the target company becomes part of the subsidiary company; in areverse triangular merger, the subsidiary becomes part of the target company, and this new entity continues as a new subsidiary under the parent buyer.
• Market-Extension vs. Product-Extension Merger:A market-extension merger takes place between companies that deal in similar products but different markets, whereas a product-extension merger occurs between companies that offer similar products and occupy similar markets. In both cases, the object of the merger is to grow the customer base.
• Joint Venture (JV):This is a partnership between two or more business entities, usually for the sake of executing a particular project. A joint venture can be formal or informal. In a formal JV, the involved entities often create a separate business entity for the partnership, to which they contribute assets and in which they all have equity that they manage.
• Asset vs. Stock Deal:In an asset sale, the acquirer purchases the target company’s assets (knowledge, customer lists, inventory, resources, equipment, etc.), but the target company remains the legal owner. In a stock deal, the buyer purchases the target company’s stock and assumes ownership of all its current assets and liabilities.
• Share Exchanges:Also called astock swap, a share exchange occurs when some of the target company’s shares are exchanged for some of the buyer’s shares in a merger or acquisition. Both companies’ stocks must be valued beforehand to ensure an accurate swap ratio.
• Discounted Cash Flow (DCF):In this valuation model, you estimate future cash flows using a discounted rate that allows you to make projections about a company’s monetary worth.

The Importance of Synergy

In M&A,synergyrefers to the potential financial benefit that results from combining two business entities. A merger or acquisition is only worthwhile if the projected value and performance of the joined entities is greater than the sum of its individual parts.

Because synergy is often the driving force behind a merger or acquisition, evaluating synergy is crucial. There are several ways to do this (which we explain later on), but in short, you should calculate bothhard synergies(cost savings) andsoft synergies(revenue increases).

Companies choose to pursue a merger or acquisition for a variety of reasons — most commonly to achieve economies of scope or scale, to diversify, to transfer resources, or to cross-sell a different product or service to an existing customer. Other motivations include uniting common products (that often perform in different markets), gaining market share, or in the case of international M&A, entering a foreign market.

For more information about the motivations and strategies behind M&A, read this article.

Considerations for Executing M&A

You must take many factors into consideration when deciding not only if you’re going to pursue a merger or acquisition, but also how you’re going to execute the deal. M&A can be an extremely laborious and involved process, so ensure you spend adequate time and resources exploring the following:

• Financing the Deal:Will you pursue a stock or asset deal? Also, think about additional costs, such as tax implications (which will differ based on the type of deal you pursue), capital expenditures, comparative ratios, and replacement costs.
• Rival Bidders:As the buyer, don’t assume that you are the only party interested in the target company. As the target company, you should explore multiple bids rather than accept the first option.
• Target Closing Date:Keep your ideal timeline in mind. The deal will inevitably take longer than you anticipate, but tracking against a general schedule can help expedite processes and limit stalling. Each party should be aware of the other’s timeline as well.
• Market Conditions:Outside forces, such as trends in your product marketplace (or the larger economy), will undoubtedly affect the success of a merger or acquisition. Spend time on product and market forecasting — and consult outside experts when necessary — to improve your chances of executing a worthwhile and financially valuable deal.
• Laws:Understand the relevant corporate and antitrust laws, as well as securities regulations, when moving through your M&A deal. Additionally, be aware of any exclusivity agreements as you move through the process.

The length of the M&A process can take anywhere from six months to several years, depending on the complexity of the deal. While it can be helpful to draft a timeline and target a closing date for tracking purposes, understand that delays are inevitable, so build in time for change.

大多数并购涉及到一个标准的年代late of characters. Below is a list of the critical roles and responsibilities in a typical M&A deal:

• CEO:Ultimately, the CEO signs off on the deal and is responsible for making the decision based on demonstrated risks and rewards.
• CFO:The CFO is arguably one of the most critical actors in any M&A deal. The CFO is responsible for evaluating the financial risks, liabilities, and rewards of the deal, managing the due diligence process, and reporting this information to the CEO.
• External Consultant:Many companies involve a third-party consultant to help with the due diligence and valuation processes. An external evaluation can remove any emotional bias from the equation, so you can face the numbers objectively.
• Investment Bankers:In M&A, investment bankers act as financial advisors and represent either the buyer or seller during the process.
• Legal:Most companies seek external legal help to guide them through the deal and ensure that they meet all legal parameters.

When you execute a merger or acquisition strategically and intelligently, you enhance your company’s competitive position in the market and improve its financial credit. In addition, the M&A allows you to enhance business relationships, expand your offering of products and services, heighten brand recognition, and increase capacity at a lower cost.

Also known as abid process letterorbid procedure letter, an M&A process letter accompanies the confidential information memorandum (CIM) in an M&A auction. The process letter typically provides information on the M&A auction schedule, instructions, and contact information for all future communication, as well as any terms that the bidders must include if they make an offer.

M&A is a complicated process that relies on deep analysis, attention to detail, and compromise. Below is a list of additional best practices, in approximate chronological order:

For the Buy Side:

• Approach the target company diplomatically. Understand the company’s position before initiating contact, and be sensitive to how it might receive your offer.
• Find and retain experienced leadership/advisors.
• Keep culture fit in mind — from first contact through integration.
• Develop trust between the intermediary and seller (if you’re using a third-party consultant or legal team). Keep communication open among all parties throughout the process.
• Create a transition plan, so you don’t head into integration blindly.
• Continually monitor the success of the merger or acquisition over time.

For the Sell Side:

• Don’t jump at the first offer. Know the strength of your position, and involve outside advisors if you need help with this analysis.
• Find and retain experienced leadership/advisors who will have your best interests in mind.
• Engage in conversations with real-world buyers rather than relying on analysis. Doing so will strengthen your position and savvy; it will also present an opportunity to bolster business relationships.
• Bring multiple buyers to the table to increase value.

Throughout the process, issues are bound to arise on both the buy and sell sides. Both parties should resist the urge to get too emotional or latch onto highs and lows — instead, solicit help when you need it, and keep communication open and honest.

Once you progress to the integration phase, be sure to perform periodic reviews on personnel, products, and operations. Successful integration relies on continually paying attention to what is and isn’t working and finding ways to compromise rather than set hard and fast rules for how the business will continue as one entity.

Automated software can be useful to the M&A process in a number of ways, including the following:

• Automated software can help with management: scheduling, timeline, collaboration, etc.
• Automated software can help with data transfer/integration.

Empower your people to go above and beyond with a flexible platform designed to match the needs of your team — and adapt as those needs change.

The Smartsheet platform makes it easy to plan, capture, manage, and report on work from anywhere, helping your team be more effective and get more done. Report on key metrics and get real-time visibility into work as it happens with roll-up reports, dashboards, and automated workflows built to keep your team connected and informed.

When teams have clarity into the work getting done, there’s no telling how much more they can accomplish in the same amount of time.Try Smartsheet for free, today.