Trillions of dollars a year exchange hands through M&A deals, empowering companies to explore new markets, enhance shareholder value, and even benefit consumers.
This comprehensive guide examines the entire M&A process, looking at its definition and scope, and the various roles and responsibilities involved. It also explores the underlying reasons and considerations behind M&A deals, and provides step-by-step insights for both the buy and sell sides.
What is an M&A Process?
The M&A process is the end-to-end structured and strategic approach of combining two or more companies.
The merger and acquisitions process begins with a meticulous and comprehensive groundwork phase. This initial stage involves extensive research and due diligence to identify potential target companies or buyers that align with the strategic objectives of the acquiring entity. Armed with insights from various stakeholders, M&A teams conduct market analyses, financial assessments, and risk evaluations, to enable informed decision-making.
Once suitable prospects are identified, the negotiations phase commences, often involving financial advisors, legal experts, and other key personnel. The goal is to arrive at mutually beneficial terms that reflect the value and potential synergies between the entities involved.
After reaching an agreement, the M&A deal enters the regulatory scrutiny phase. Government agencies and regulatory bodies examine the transaction to ensure compliance with antitrust laws and other applicable regulations. The M&A team must successfully navigate the regulatory landscape while safeguarding the interests of the organizations involved.
Upon regulatory approval, the integration process commences. This pivotal phase involves merging the operations, systems, and cultures of both entities to create a cohesive and efficient combined organization.
Roles and Responsibilities
The people involved in the mergers and aquisitions process varies depending on the scale of the companies involved, the company’s structure, geographies, jurisdictions and type of merger or acquisition being sought. Here is a list of the key professionals involved, and the types of M&A deals they are usually involved in:
The CEO plays a crucial strategic role in the M&A process. They are responsible for setting the overall vision and direction of the deal, with an eye to ensuring synergy with the company’s long-term goals and growth strategy.
The CEO provides leadership and final decision-making authority, ensuring that the potential M&A transaction aligns with the organization’s mission and creates value for shareholders.
They are actively involved in high-level negotiations and engagement with key stakeholders, representing the company’s interests and ensuring a successful outcome.
The CFO is responsible for overseeing the financial aspects of the M&A process. They help to conduct financial analysis and due diligence, and evaluate the financial health and viability of the target company.
The CFO does this in collaboration with the deal team to determine the financial terms and structure of the deal, seeking to maximize shareholder value and optimize financial outcomes.
They also manage financial risks and uncertainties associated with the transaction, ensuring that the company’s financial position remains strong throughout the process. Sometimes, companies seek to appoint an interim CFO with deep experience in the sector of the company being acquired, who can further shape the deal team’s strategy.
The Deal Lead is typically a senior executive responsible for overseeing the entire M&A process. They provide guidance and direction to the deal team, ensuring alignment with strategic objectives and company priorities.
The Deal Project Manager, coordinates day-to-day activities and acts as a central point of contact for all stakeholders. They ensure smooth execution of the deal and keep the process on track and within timelines.
The Investment Banker represents either the buying or selling entity, depending on the deal’s side. They play a key role in sourcing potential targets or buyers, conducting valuations, and facilitating negotiations.
Investment Bankers advise on deal structures, financial modeling, and the optimal way to raise funds or finance the transaction, working closely with the CFO and CEO.
Investment Bankers can produce an Information Memorandum on a company, a document that summarizes the business plan of the company, its operations, its history, what it offers to potential partners, projected profit and loss statements for the next five years.
The information memorandum needs to be prepared by a professional with proper guidance from someone who has knowledge of the business it will be selling. For this reason here at Fintalent we seek to engage with Investment Bankers with professional experience from other sectors before transitioning into finance.
Lawyers are vital in managing the legal aspects of the mergers and acquisitions process. They conduct legal due diligence, identifying potential risks and liabilities associated with the target company.
Lawyers draft and negotiate legal agreements, including purchase agreements, confidentiality agreements, and other contractual documentation to ensure the deal’s legal soundness.
Accountants perform financial audits and assessments of the target company’s financial records. They play a critical role in verifying financial data and identifying any discrepancies or potential issues.
Accountants also aid in the preparation of financial reports and forecasts, supporting the CFO in making informed financial decisions.
Often, acquiring companies will target a company that may expand their product offering or operate in a different market. In such cases, M&A consultants with deep experience in the target’s niche can offer valuable insights and reports during the process.
In cross-border M&A deals, a foreign consultant can help navigate the complexities of foreign regulations, cultural differences, and business practices. They provide expertise on international trade laws, taxation, and compliance, ensuring a smooth and successful cross-border transaction.
In addition, since companies are rarely continuously looking to acquire others, it doesn’t make sense to constantly maintain a fully staffed corporate development team. Instead, companies may have a Corporate Development Officer whose role is to scope out M&A opportunities and then hire specialist consultants to join their team for the duration of the acquisition.
By the same token, sell-side consultants are often brought on to aid companies who are looking to be acquired. They play a crucial role in helping companies sell their assets or business units. Their responsibilities include conducting valuations, identifying potential buyers, and preparing the company for the sale. They negotiate and structure the deal, manage the transaction process, and support due diligence. The consultant’s expertise aims to maximize the value of the assets being sold, ensuring a smooth and successful divestiture for the selling company.
Financial Advisors, independent of investment banks, provide unbiased advice to clients on various aspects of the deal. They analyze financial implications and recommend suitable strategies.
Financial Advisors act as trusted partners, guiding clients through complex financial decisions, and offer expertise on risk management and investment options.
A Financial Advisor’s role within the M&A team is to review financials, industrial strategy and future prospects, operations and supply chain operations, technology and patents, regulatory issues. A corporate finance M&A advisor would provide financial advice on valuation and financing structure for the deal.
However, they would only be needed if your company wants to raise money for a transaction through debt or equity financing, whereas an industry-specific advisor might be more appropriate if you want them to help with valuation due diligence.
The third type of advisor is particularly useful for business owners looking to sell – a Personal Financial Advisor. They can play a key role within the M&A team in ensuring that you have a plan in place to allocate the wealth generated by the sale of a business. For small business owners invariably a large part of their wealth is their company, so when this wealth is liquidated or exchanged it is very important to develop a strategy moving forward.
Government Regulatory Bodies
Regulatory bodies such as the UK’s Competition and Markets Authority (CMA) oversee the M&A process to ensure compliance with antitrust laws and competitiveness regulations.
The CMA assesses the potential impact of the transaction on competition and consumer welfare, and their approval is essential before the deal can proceed.
In a recent high-profile M&A deal, the CMA stepped in to examine the acquisition of Activision Blizzard, a major video game publisher, by Microsoft Corporation. The proposed deal, worth billions of dollars, raised concerns about its potential impact on competition in the gaming industry. The CMA launched an investigation to assess whether the acquisition would lead to any antitrust issues or harm consumer interests.
This move by the CMA highlighted the importance of regulatory oversight in large-scale M&A transactions, emphasizing the need to ensure fair competition and protect consumers’ welfare in the rapidly evolving digital landscape.
The role of a Post-Merger consultant is pivotal in ensuring the successful integration of two merging entities. They play a key role in the development of a post-merger strategy.
They conduct a thorough culture assessment to identify any potential clashes between the organizations’ values, norms, and practices, with the aim of fostering a harmonious and collaborative work environment. Additionally, the consultant analyzes the combined customer base, seeking to leverage synergies and identify opportunities for growth and retention.
With a keen eye for detail, the consultant develops comprehensive integration plans, outlining step-by-step actions to align business processes, systems, and teams.
By providing valuable insights and guiding the post-merger integration process, the Post-Merger consultant plays a crucial role in achieving the deal’s intended outcomes and unlocking the full potential of the newly merged entity.
Take a look at this case study of the post-Merger integration of Ekhart Yoga into YogaEasy. Branka Dessens, introduced to YogaEasy by Fintalent.io, was tasked with providing a comprehensive Post Merger Integration (PMI) strategy.
In summary, the roles and responsibilities in an M&A process encompass a diverse group of professionals, all working collaboratively to drive the success of the transaction while safeguarding the interests of the involved entities. Each role brings unique expertise to the table, and effective coordination among them is paramount for a seamless and prosperous M&A journey.
Pursuing an M&A Transaction: Reasons and Considerations
There can be a whole host of reasons for undertaking an M&A deal, both on the buy side and the sell side.
Buy Side Reasons
Ultimately the goal for the acquiring company is to strengthen its business proposition in some way. Here is a list of potential reasons for wanting to acquire a company, using examples of Meta’s (formerly Facebook) acquisitions that illustrate these reasons. Some acquisitions align with multiple reasons, as they can serve various strategic objectives simultaneously, so the examples contained below act as a guide to illustrate one of the reasons behind a particular acquisition.
Expanding market share.
The acquiring company to gain a larger foothold in its industry, increasing its presence and influence among customers and competitors alike. By acquiring a company with a significant customer base or a strong market position, the acquirer can tap into new customer segments and geographic regions, driving revenue growth and diversification. Additionally, the acquisition may lead to economies of scale and cost efficiencies, enabling the combined entity to offer more competitive products and services. However, it is essential to remain mindful that excessive market share may attract scrutiny from regulatory bodies, such as the CMA mentioned above, necessitating careful evaluation and compliance with antitrust laws and regulations.
Meta example – Whatsapp, acquired for $19 billion in 2014
Meta’s acquisition of WhatsApp helped increase its market share in the messaging app space and solidified its position as a leading communication platform worldwide.
Creating synergies for added value.
Acquiring companies seek to leverage the combined strengths and resources of both entities to achieve outcomes that are greater than the sum of their individual parts. Synergies can be categorized into two main types: hard synergies and soft synergies. Hard synergies typically involve cost-saving opportunities, such as streamlining operations, consolidating supply chains, and optimizing overhead expenses. On the other hand, soft synergies focus on revenue increases through cross-selling opportunities, accessing new customer bases, and expanding market reach. The pursuit of synergies in M&A deals is an integral aspect of maximizing the deal’s value and achieving long-term success, making it a compelling reason for companies to engage in strategic acquisitions.
Meta example – LiveRail, acquired for $500 million in 2014
This acquisition aimed at creating synergies by integrating LiveRail’s video advertising technology with Facebook’s ad platform, enhancing ad targeting and revenue generation
Obtaining new technology or expertise.
This strategic move allows the acquiring company to gain access to cutting-edge technologies, specialized knowledge, and innovative solutions that can enhance its competitive advantage and position in the market. By acquiring a company with complementary expertise, the acquiring entity can accelerate its own product development and improve operational efficiencies, leading to increased profitability and growth. The infusion of new technology and expertise can enable the company to stay ahead of industry trends, adapt to evolving customer demands, and remain at the forefront of the rapidly changing business landscape.
Meta example – Oculus VR, acquired for $2 billion in 2014
Meta acquired Oculus VR to gain expertise in virtual reality technology, which opened up new possibilities for immersive experiences and content consumption through VR. This acquisition contributed to Meta’s pivot from being solely a social media platform and expansion into web3 technologies.
Scaling in a new product area.
By acquiring a company with an established product in a new area, the acquiring company can swiftly expand its offerings beyond its existing portfolio and enter promising markets. The acquirer can accelerate its growth trajectory and reduce the time and resources needed for in-house development. The acquisition enables the company to leverage the target’s established customer base, distribution channels, and brand recognition, providing an immediate entry point into the new product area.
Meta example – CTRL-labs, acquired for between $500 and $1 billion in 2019
With the acquisition of CTRL-labs, a neural interface technology startup, Meta aimed to venture into the futuristic field of brain-computer interfaces (BCIs). The technology developed by CTRL-labs holds the potential to enable users to interact with digital devices using their brain signals, opening up new possibilities for virtual reality and augmented reality applications.
Expanding market presence and operations into new regions, reducing its reliance on a single market or geographic location. By acquiring a company with an established customer base, distribution channels, and brand recognition in the target region, the acquirer can accelerate its entry into unfamiliar markets and mitigate risks associated with regional economic fluctuations. Diversifying geographically through M&A can open up opportunities for growth, enhance resilience against market-specific challenges, and position the company as a global player with a broader footprint.
Meta example – Servicefriend, acquired in 2019
Meta’s acquisition of Servicefriend, an Israeli-based AI-powered customer service platform, aimed to diversify its presence in the Israeli tech market. Israel is #1 in the world for the most unicorns per capita. By integrating Servicefriend’s technology and expertise, Meta enhanced its customer service capabilities, catering to a wider global audience with localized support and engagement.
Optimizing taxation benefits.
By acquiring a company with operations in jurisdictions with lower tax rates or beneficial tax treaties, the acquirer can reduce overall tax liabilities and improve its tax position. Additionally, strategic tax planning and restructuring post-acquisition can lead to improved tax optimization, maximizing deductions, and minimizing tax burdens.
Meta example – Most acquisitions?
Most M&A transactions provide opportunities for financial restructuring and allow for parent companies to avoid the heaviest tax bills. For example, in 2018 Meta (then Facebook) only paid £7.4 million in tax in the UK and only 5% of its UK-sales were converted into UK-taxable profits.
Implementing vertical integration.
This enables the parent company to gain greater control over its supply chain and production processes by acquiring a business involved in the production of raw materials, components, or distribution channels. Vertical integration enables the company to reduce dependency on external suppliers, enhance efficiency, and potentially lower production costs. By vertically integrating, the company can ensure a seamless flow of inputs, optimize production schedules, and have a more significant influence on product quality. This strategic alignment of operations strengthens the company’s competitive position in the market, allowing it to respond more effectively to changing consumer demands and create value through a more integrated and streamlined business model.
Meta example – Parse, acquired for circa $85 in 2013
Meta’s acquisition of Parse provided it with a comprehensive app development platform, enabling vertical integration and simplifying the process for developers to build apps that integrate with Facebook’s ecosystem, for example allowing users to sign up for their app using their Facebook account.
Exploring cross-selling opportunities.
The acquiring company may be seeking to leverage its existing customer base and distribution channels to introduce complementary products or services from the target company. By acquiring a business with products that align with the acquiring company’s offerings, they can expand their product portfolio, enhance customer satisfaction, and drive additional revenue streams and synergies. Cross-selling enables the company to bundle products, create attractive product packages, and establish a stronger presence in the market.
Meta example – Moves, acquired in 2014
The acquisition of Moves, a fitness-tracking app, allowed Meta to cross-sell health-related services and products to its vast user base.
Driving revenue growth and cash flow.
Meta example – Karma, acquired in 2012 for around $80 million.
Meta had acquired Karma in order to boost its ecommerce channels and attempt to build a revenue stream from its Gift shop integrated into its social media platform, attempting to capitalize on users wishing their friends happy birthday and suggesting that they purchase them a Gift from their in-store site. This feature turned out to be a failure and was axed in 2014.
Pursuing opportunistic goals.
In the dynamic and ever-changing business landscape, unforeseen opportunities can arise suddenly, offering companies the chance to gain a competitive edge or enter new markets. By swiftly acquiring the company presenting the unexpected opportunity, the acquiring entity can leverage its unique offerings, technology, or market positioning to rapidly expand its portfolio and grow its market share.
Meta example – Instagram, acquired for $1 billion in 2012
The acquisition of Instagram allowed Meta to expand its presence in the mobile-first economy, capturing a rapidly growing user base and complementing its existing social media platform with a focus on image sharing. The $1 billion price tag for Instagram was viewed by some as high risk at the time as Instagram was only two years old and had a handful of employees.
Sell Side Reasons
There are many reasons for wanting to sell your company and become acquired. These five reasons explained below assume the company’s management is voluntarily seeking to become acquired, rather than subject to a hostile takeover.
The decision to sell can arise from a desire to secure a financial windfall for the company founders without the need to IPO and take the company public, allowing them to capitalize on their years of hard work and dedication while also exploring new opportunities or ventures. Additionally, founders may seek to sell to provide an exit opportunity for shareholders or investors, enabling them to realize a return on their investments. Exit strategy consultants can be engaged to help with such planning. Such a strategic move can be particularly appealing for startups and early-stage companies, where investors may wish to liquidate their holdings and reinvest in other ventures.
By seeking acquisition by a larger, more established entity, the founders aim to leverage the acquiring company’s existing resources, market presence, and customer base to propel their business to new heights. This decision offers an opportunity to access greater financial support and expertise, which can accelerate product development, enhance operational efficiency, and drive innovation.
Access to Resources
The company seeking to be acquired can tap into the acquiring company’s established financial strength, securing access to larger capital pools that can fuel further expansion and development. Additionally, becoming a part of a larger organization grants access to a broader talent pool and expertise. This influx of human resources enables the company to bolster its team with top talent, fostering innovation and the execution of ambitious projects.
The decision to sell represents a pragmatic approach to address complexities that arise in rapidly evolving markets. By aligning with a larger, more established entity through acquisition, the founders gain access to valuable resources, including advanced technologies, distribution channels, and operational expertise. This newfound support empowers the company to tackle industry challenges more effectively.
As industries become increasingly regulated, adhering to complex legal requirements can pose challenges for smaller companies. By opting for acquisition, the acquired company can entrust regulatory responsibilities to a larger, more experienced entity with established compliance frameworks.
Considerations when undertaking an M&A Process
These additional considerations apply both to the buyers and sellers in an M&A process and will be looked at in more detail in the process step-by-step guides below.
One of the most critical considerations when undertaking an mergers and acquisitions process is defining a clear and coherent strategy. Evaluate how the merger or acquisition aligns with the company’s long-term objectives and growth plans. Determine whether the target company’s assets, expertise, or market position complement your existing business and whether the deal will create synergies that enhance overall value. Developing a well-thought-out strategy will serve as a guiding framework throughout the process, ensuring that every decision made contributes to the achievement of broader business goals.
Timing is crucial in M&A transactions, and having a well-defined timeline is essential. While it is common for deals to take longer than anticipated, setting realistic expectations and tracking against a general schedule can help avoid unnecessary delays and mitigate uncertainties. Consider economic trends, and industry forecasts to gauge whether the current environment is favorable for the proposed deal. A careful assessment of timing factors will aid in making informed decisions on when to initiate the process and how to navigate potential challenges along the way.
Assessing market conditions is key before embarking on an M&A journey. Analyze trends in your product marketplace and the overall economy to anticipate potential risks and opportunities. Conduct thorough market research and seek guidance from experts when necessary to gain valuable insights into the industry’s outlook. Understanding market conditions will enable you to make informed decisions about the feasibility and potential success of the deal, ensuring that it aligns with, or indeed successfully disrupts, the broader market landscape.
In the competitive landscape of mergers and acquisitions, being aware of rival bidders is vital for both buyers and target companies. As a buyer, consider that the target company may attract interest from multiple parties. Engage in competitive intelligence and prepare to offer compelling incentives to stand out. As the target company, explore multiple bids to assess the most advantageous offer and maximize value. Vigilance regarding competition will enable effective strategizing and a better negotiating process.
Deciding on the most suitable financing structure for the deal is a crucial consideration. Weigh the pros and cons of pursuing a stock or asset deal, taking into account factors such as tax implications, capital expenditures, and comparative financial ratios. Understand the impact of the chosen financing method on your company’s financial position and future growth. Adequate financial planning and collaboration with financial experts will ensure that the financing approach aligns with your overall business strategy and supports the successful execution of the merger or acquisition.
Buy Side step-by-step
Define the Acquisition Strategy
Begin by clarifying the businesses’ strategic objectives, considering short term opportunities and aligning them with the company’s long-term goals and growth aspirations. Establish specific criteria for target companies, such as industry, size, geographic location, and synergies with existing business areas.
Search for Target Companies
Conduct thorough research and a systematic search to identify potential target companies that fit the acquisition strategy. Leverage market intelligence, industry contacts, and corporate development advisors to build a comprehensive list of suitable candidates.
Make First Contact
Initiate contact with the identified target companies discreetly and professionally. The acquiring company should craft a compelling and tailored approach to express interest in exploring a potential acquisition, while ensuring confidentiality throughout the initial communication.
Value Target Company
Conduct a comprehensive valuation of the target company to determine its fair market value. Consider engaging company valuation specialists who look at factors such as financial performance, growth prospects, intangible assets, and comparable transactions in the industry.
Enter into negotiations with the target company to agree on key deal terms, including the purchase price, payment structure, and any contingent arrangements. Negotiate skillfully to strike a mutually beneficial deal for both parties.
Conduct Due Diligence
Thoroughly investigate the target company’s financial, operational, legal, and commercial aspects to identify potential risks, opportunities, and synergies. Due diligence is crucial in validating the information provided by the target company and understanding the deal’s viability.
Sign the Contract
Draft and finalize the definitive purchase agreement, including all terms and conditions agreed upon during the negotiation phase. Engage legal counsel to ensure that the contract protects your interests and aligns with regulatory requirements.
Determine the most appropriate financing structure for the acquisition, taking into account the acquiring company’s financial capacity and risk tolerance. It is often worth engaging a deal structuring consultant to assist with this process. Secure necessary funding from various sources, such as cash reserves, debt financing, or equity financing.
Close the Deal
Fulfill all closing conditions outlined in the purchase agreement to complete the acquisition. Coordinate with legal, financial, and operational teams to finalize the transaction and transfer ownership of the target company to the acquiring organization.
Execute a well-planned integration strategy to smoothly assimilate the target company into your organization. Focus on aligning cultures, systems, processes, and personnel to realize the expected synergies and maximize the value of the acquisition. Again, the use of post-Merger integration experts, such as in the case study mentioned above can help with this crucial stage of the post-acquisition process.
Sell Side step-by-step
There are many ways in which a company can be acquired and as such the M&A process often varies. This may include selling a majority stake, minority stake, or the entire company to another organization, private equity firm, or individual investor. The steps below reflect the process of a company actively seeking to be acquired.
Before initiating the sell-side process, the company evaluates its readiness for the transaction. Exit readiness consultants can assist with this process, including assessing the company’s financial health, operational efficiency, and market position to ensure it is well-prepared for the sale.
The company usually engages M&A advisors, investment bankers, and valuation experts, to guide them through the selling process. These experts provide valuable insights, market intelligence, and negotiation support to achieve the best possible outcome.
A thorough company valuation is conducted by advisors using various methods, including analyzing comparable transactions in the market and calculating the internal rate of return (IRR). This helps determine a realistic and attractive asking price for the company.
Advisors work with the company to create compelling marketing materials, such as a pitch book and an information memorandum. These documents showcase the company’s strengths, financial performance, and growth potential to attract potential buyers.
Identify Potential Buyers
Based on the company’s profile and industry, advisors identify potential buyers, including strategic investors, private equity firms, or other interested parties.
Advisors discreetly reach out to potential buyers to gauge their interest in the acquisition. Non-disclosure agreements (NDAs) may be used to protect sensitive information during this phase. If the buyer(s) want to move forward usually a letter of intent (LOI) will be sent, explicitly setting out the proposed merger and an overview of the terms of the deal.
Once a potential buyer expresses serious interest and has sent a letter of intent, they conduct due diligence. The buyer examines the company’s financials, operations, legal aspects, and other key areas to assess the risks and opportunities associated with the acquisition. The company being sold should maintain regular contact with the potential buyer in order to facilitate this process.
Negotiations between the seller and buyer occur to finalize deal terms, including the purchase price, payment structure, and other conditions. Skilled negotiation is essential to achieve a mutually satisfactory agreement.
After reaching an agreement with an acquiring company, the transaction moves to the closing stage. At this point all necessary legal and financial documents are finalized, and ownership of the company is transferred to the buyer
After the deal is closed, there may be post-closing obligations, such as transitional support, employee retention, or integration activities. These steps ensure a smooth transition and alignment of the acquired business with the buyer’s operations.
Navigating the M&A process is a complex endeavor that demands careful planning, expertise, and collaboration. This ultimate guide has hopefully equipped its readers with a comprehensive understanding of the entire M&A journey, from conceptualization to closing, shedding light on the intricacies and challenges both on the buy and sell sides.
As the M&A landscape evolves, companies face new opportunities and complexities, making it essential to remain agile and well-informed. By acknowledging the significance of strategy, timing, market conditions, competition, and financing, stakeholders can approach M&A deals with confidence and strategic foresight.
Embracing best practices, engaging experienced advisors, and exercising due diligence are vital components in optimizing the outcomes of M&A transactions, ensuring value creation, ensuring regulatory compliance, and contributing to long-term success of any given M&A deal.