Process of M&A (Mergers and Acquisition)

The M&A Process is a multi-step process and can be short depending on the size and complexity of the transaction involved. Mergers and Acquisitions are part of company operations. Two entities combine their assets fully or in part to form a new entity or function as one or the other.

We’ve divided this into eight broad steps:

  • Developing StrategyIdentifying and Contacting TargetsInformation ExchangeValuation and SynergiesOffer and NegotiationDue DiligencePurchase AgreementDeal Closure and Integration

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8 Step in the Mergers and Acquisitions (M&A) Process

#1 – Developing Strategy

TheM&A process starts with developing a strategy that involves various aspects. First, the buyer identifies the motivation behind the mergers and acquisitions transaction process, the type of transaction they want to conduct, and the amount of capital they are willing to spend for this transaction. These are some factors that the buyer considers while developing the strategy.

#2 – Identifying and Contacting Targets

After the buyer has developed the M&A strategy, they start identifying potential targets in the market that fit their criteria. Finally, a list of all potential targets is made, and the buyer starts contacting the targets to express interest in them. The main purpose of this step is to obtain more information about the targets and measure their level of interest in such a transaction.

#3 – Information Exchange

After the initial conversation goes well and both the parties have shown interest in going ahead with the transaction, they begin the initial documentation, which generally includes submission of a Letter of Intent to officially express interest in the transaction and signing a confidentiality document assuring that the proceedings and discussions of the deal will not go out. After that, the entities exchange information such as financials, company history, etc., so that both parties can better assess the deal’s benefits to their respective shareholders.

 #4 – Valuation and Synergies

After both sides have more information about the counterpartyCounterpartyA counterparty in a financial transaction is the person or entity on the other side of the agreement. Any trade must have at least two parties who serve as counterparties for each other. For every buyer in a purchasing deal, there must be a seller. And for every seller, there must be a buyer willing to purchase.read more, they begin an assessment of the target and the deal as a whole. The seller is trying to determine a good price that would result in the shareholders gaining from the deal. The seller is trying to assess a reasonable offer for the target. The buyer is also trying to assess the extent of synergies in M&A that they can gain from this transaction in forms of cost reduction, increased market power, etc.

#5 – Offer and Negotiation

After the buyer has completed their valuation and assessment, they submit an offer to the shareholders of the target. This offer could be a cash offer or a stock offer. The seller analyzes the offer and negotiates for a better price if they feel that the offer is not reasonable. This step can take a long time to be completed because neither party wants to give the upper hand to the other by showing their hurry to close the deal. Another common hindrance at this step is that sometimes, there could be more than one potential buyer when the target is a very attractive entity. So often, there is competition among the buyers to offer a better price and terms to the target.

#6 – Due Diligence

After the target has accepted the offer from the buyer, the buyer begins due diligence of the target entity. Due diligence consists of a thorough review of every aspect of the target entity, including products, customer base, financial books, human resources, etc. The objective is to ensure that there are no discrepancies in the information provided earlier to the buyer and based on which the offer was made. If some discrepancies come up, it could lead to a bid revision to justify the actual information.

#7 – Purchase Agreement

Assuming that everything has gone well, including the government approvals and no antitrust lawsAntitrust LawsThe Clayton Antitrust Act is a United States antitrust law that was enacted in 1914 to prevent unfair and harmful trade practices that are unfair and harmful to the competitiveness of markets  This Act was drafted by Henry De Lamar Clayton, and it was enacted during Woodrow administration.read more kicking in, both parties begin drafting the final agreement, which outlines the cash/stock that would be given to the target shareholders. It also includes when such a payment would be made to the target shareholders.

#8 – Deal Closure and Integration

After the purchase agreement has been finalized, both parties close the deal by signing the documents, and the buyer gains control of the target. After the deal’s closure, the management teams of both entities work together to integrate them into the merged entity.

Regulations of M&A Transactions

Mergers and acquisitions Process Regulations are as follows –

  • Antitrust – M&A processes are very closely regulated because they hold the potential to disrupt a fair and just market. M&A transactions need government approval to go through. If the government feels that the transaction is against the public interest, they will put Antitrust Regulations in place and disapprove of the transaction.Laws – Various laws have been put in place to monitor the mergers and acquisitionsMergers And AcquisitionsMergers and acquisitions (M&A) are collaborations between two or more firms. In a merger, two or more companies functioning at the same level combine to create a new business entity. In an acquisition, a larger organization buys a smaller business entity for expansion.read more transactions process and ensure that they are not against the public interest. For example, the Williams Act requires a public disclosure if a company acquires more than 5% of another company.

Conclusion

M&A transactions happen regularly, and sometimes they take the shape of friendly transactions, and sometimes they are hostile. They help companies grow in the same industry and expand into new industries. The process of M & M&A transactions can be lengthy or short, depending on the transaction’s complexity and size. The period may also depend on the regulatory approvals required. Recommended Articles

This article has been a guide to the M&A process and its definition. We discuss the eight steps in the merger and acquisition (M&A) process and its regulations. You can learn more about mergers & acquisition from the following articles –

  • M&A TypesMeaning of MergerMerger Arbitrage DefinitionTypes of AcquisitionHorizontal vs. Vertical Integration