The five-step M&A process outlined below covers the stages that will be common across all types of mergers and acquisitions.
Overview of an M&A timeline
The five steps of an M&A transaction are:- Deal sourcing
- Preliminary discussions
- Due diligence
- Valuation, Letter of Intent and deal finalization
- Post merger integration
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M&A lifecycle
The lifecycle of a merger or acquisition includes the entire process of executing the deal, from developing the strategy to identifying the target or buyer, due diligence, negotiations, closing a deal and post-deal integrations.Developing an M&A strategy
Before beginning the M&A process, the first step is for the buy-side and sell-side to set strategic goals for the merger or acquisition. These may include goals like entering a new market, acquiring technology or achieving cost synergies.Developing an M&A strategy is critical as it allows each side of the deal to evaluate potential options against the criteria and goals set. For the buy side, the M&A strategy forms the foundation for the criteria that will be used to develop a list of potential targets, such as industry, geography and size.
For the sell side, the M&A strategy determines the motivation for selling and allows the company to prepare to achieve a maximum valuation. The motivation may include financial needs, a strategic pivot, or shareholder pressure. Developing a strategy early provides time for the company to organize financial and policy documentation ahead of due diligence.
Both sides of M&A need to understand the market, the opportunities and risks that exist broadly, before narrowing the focus to targets that fit within the strategic criteria.
The 5-step M&A process
1. Deal sourcing
The first step in the M&A process is to identify potential targets that align with the M&A strategy. This could mean identifying potential buyers or sellers and researching publicly available information to assess whether the company is a good fit.2. Preliminary discussions
Once a suitable target is identified, preliminary discussions between potential buyers and sellers begin. This is an exploratory stage where companies discuss fit, potential M&A synergies and strategic alignment.Non-disclosure agreements are signed to protect sensitive information. With the NDA in place, the sell side may present a confidential Information Memorandum (CIM) to present the company to potential buyers.
2. Due diligence
If a target meets the initial criteria and presents a suitable opportunity, the next step is due diligence. Usually conducted within a secure virtual data room, due diligence allows the buyer to ‘peek beneath the hood’ of the potential target company to assess its financials, assets, policies and strategy.The seller’s virtual data room (VDR) will contain structured folders with confidential finance, employment, intellectual property, strategic positioning and other business-critical information. Each folder within the VDR is secure, and with Ansarada’s customizable granular access, specific individuals or teams assessing the information can be invited.
The due diligence process also includes Q&A, where both sides of the deal can ask questions. These questions may come from the information revealed during due diligence, or relate to the strategic goals of either side.
Modern deals and cross-border deals often require this entire process to be conducted remotely. A deal platform built for purpose can facilitate this seamlessly.
Explore: Virgin Australia’s Senior Managing Director on Q&A in a cross-border deal
4. Valuation, Letter of Intent and deal finalization
Once satisfied with due diligence, the buyer values the target company. This takes into account the potential of the company, the current market, any precedent transactions, and the discounted cash flow (DCF).Once the terms are agreed upon, the buyer issues a Letter of Intent (LOI) that outlines the key deal terms like price, structure of the deal, and any contingencies. Detailed agreements are drafted by legal teams, based on the Letter of Intent. Further negotiations determine the final terms of the deal, and the buyer arranges financing.
Depending on the deal size and jurisdiction, regulatory approvals may be required.
5. Post-merger integration
Once the deal is closed, post merger integration begins to combine the assets, resources and operations of the two companies. A well-planned integration strategy is crucial for realizing the value and potential of the deal. The information gathered during due diligence will inform the post-merger integration process.M&A timeline considerations
The end-to-end merger and acquisition process can take anywhere from six months to several years, depending on the deal's complexity. The transaction can include stock or asset sales or cash.Ansarada’s historical data shows the average M&A process timeline is generally 9 months or more. However, some famous M&A deals in recent years have taken years to complete.
Deal processes can be streamlined using technology like Ansarada’s deal platform. Features like AI redaction, Smart Sorting of documents and Always Secure Storage enable companies to prepare in their own time and act swiftly when the opportunity arises.
Who to include in your M&A team
The M&A team for each party is a specialized group that includes members of the company and external advisors. It will include legal staff, bankers, and C-suite executives. The M&A team may also include advisors with industry experience or specific knowledge.
These advisors tend to fall in one of the three roles outlined below, although depending on the deal size and industry, it is not uncommon for additional specialist advisors to be required – for example, an environmental advisor that assesses environmental risks, or a property advisor who values properties and forecasts rental costs.
Bankers
M&A bankers typically work at investment banks or boutique advisory firms that specialize in advising companies on their acquisition or sales strategy. Their role is to identify potential buyers, advise on key value drivers and the valuation of the business, develop an overall M&A project plan (including a detailed timeline for the transaction), and communicate these with bidders. They also play a key role in facilitating and administering the Q&A process with bidders, as well as in negotiations – especially during the terms of the deal.
Lawyers
Lawyers play an important role in any M&A transaction. Like bankers, they also have an intimate involvement in helping to structure and advise on the deal.
They will likely be involved in reviewing and analyzing documents, drafting agreements, and providing some limited advice on terms. They could also be involved giving tactical legal advice as well as conducting legal due diligence and negotiating on behalf of the sell-side company.
Accountants
Accountants will be focused on the financials, including past performance and forecasting. They’ll be responsible for signing off on the historical financials to verify they fairly reflect the true activities of the business. They’ll also advise on the most appropriate transaction structure from a taxation perspective, and potentially prepare a summary report on the company’s financials.
Learn more: financial due diligence.
How long do mergers and acquisitions take to prepare?
The minimum preparation period for an M&A transaction is 2 to 3 months if there are no substantial changes to the sell-side business or its reporting structure. If there are changes, both internal and external advisors may need 6 months or longer for deal preparation.
Accelerate M&A by preparing early with free access to Ansarada’s deal platform until you invite the first guest
Taking an always-on approach to M&A enables CEOs and founders to seize an opportunity when it arises. Ansarada makes this easy with our virtual data room, which you can try for free until you invite the first external user.