M&A Mergers and Acquisitions

M&A: What to Expect During the Merger and Acquisition Process

Oct 28, 2021

Navigating the merger and acquisition process poses challenges even for seasoned entrepreneurs. When you’ve never experienced M&A before, understanding what to expect allows you to plan accordingly, taking some of the stress out of the acquisition process. Often, the M&A process is worth the journey, as it allows unprecedented expansion compared to the much slower average rate of organic growth. Whether selling your business was always your end game or you experienced unprecedented success that resulted in an unexpected offer, this guide provides a deep dive into each step of mergers and acquisition.

Planning and strategy

Developing a clear strategy before entering M&A processes can reduce the risk of conflict resulting from misunderstandings and confused expectations. During this phase, your leadership team should consider these questions:

  • Why do you want to explore the merger or acquisition in question? For example, do you want to expand your geographic reach, add a new product line, or enter a new market?
  • How will you fund the transaction if you plan to purchase all or part of another company?
  • How will the newly formed company operate after the merger or acquisition?
  • Who are the key stakeholders in this process?

Conducting due diligence well before signing legal documents can increase the chances of a successful merger and acquisition transaction. After answering the questions above, your company can narrow the potential targets for purchase or partnership. Establish definitive criteria including geography, clientele, and profit level to identify key prospects. 

Structuring the M&A transaction

The type of merger or acquisition will also influence your target firms. With a merger, partnering with the other company should increase the value of your enterprise. Many modern firms decide to pursue a merger of equals, in which one company buys out shareholder stock in exchange for stock in the new company. This is rarely an even one-to-one trade. Instead, the company will establish a ratio for determining ownership in the new company (three shares of stock in the old company equal one share in the new company, for example). 

An acquisition occurs if you plan to purchase the other company and completely eclipse its operations rather than combining forces. A strategic acquisition strives to expand the purchasing company’s geographic or market footprint. These acquisitions often focus on acquiring competing companies or firms in adjacent industries. With a financial acquisition, the purchaser is not seeking to expand an existing business but instead will purchase the company and operate it with the intention of growing its valuation.

During this phase, your legal team must produce a letter of intent (also known as a term sheet) outlining the proposed terms of the transaction. Considerations that affect the structure of the newly formed company include relevant antitrust and securities laws, availability of financing, and tax implications. 

When the new company integrates the operations of both firms, the resulting structure must facilitate a smooth transition. Strategize about how to take advantage of cost savings by removing redundancy and accessing economies of scale. Failure to successfully merge operations can increase rather than reduce expenses, diluting the value of the resulting entity. 

Establishing fair market value

Whether you’re buying another firm or contemplating an offer for the purchase of your company, you’ll need to know the fair market value to negotiate an advantageous deal. Understanding whether a proposed purchase price makes sense can be difficult when neither company trades on public stock markets. Keep these factors in mind when establishing an asking price for your firm or making an offer on another company:

  • Sales prices of comparable businesses and appraisal values
  • Historical financial performance and projected future profit growth
  • The skills, knowledge, and experience of managers and stakeholders
  • Legal, financial, or operational risks associated with the transaction
  • Ownership of proprietary assets such as patents and other forms of intellectual property (IP)
  • Competition from outside entities to purchase the firm in question (rival bidders), a concern in most acquisition transactions
  • Potential for a future initial public offering (IPO) of stock
  • Valuation used in prior rounds of financing
  • Industry and applicable trends and threats in the specific sector

Companies should pursue professional business valuation to ensure a smooth M&A transaction and avoid partnerships that fall short of established financial and mission-based objectives. When you have a solid valuation based on relevant data, you can make, negotiate, or accept an offer with confidence. 

Conducting due diligence

Even after acceptance of an offer, thorough due diligence provides M&A financial protection through detailed analysis of the company’s history, finances, operations, and other critical documents. Most companies seek professional assistance with the complex and diverse tasks involved in the M&A process of due diligence, such as:

  • Verification of ownership of assets
  • Confirming historical sales and customer records
  • Operational systems and processes
  • Intellectual property and patent searches
  • Public record, lien, bankruptcy, tax, litigation, and judgment searches
  • Credit reporting
  • Records of good standing and consumer complaints
  • Charter documents and public filings
  • Verification of related entities, subsidiary firms, and holding companies
  • Independent verification of appraisal

The final phase of the due diligence process involves careful legal review in preparation for closing. Attorneys for all companies must review all required filings and amendments. Some states may require tax filings or other registrations to complete the transaction. According to Forbes, the entire merger and acquisition process can take up to six months or longer, depending on the complexity of the companies involved and other factors. 






  1. About the Author:

  2. About the Author:

    As a Principal at Valesco, Angie Henson serves in key roles related to new investment origination, portfolio management, and investor relations. She directs the firm’s strategic acquisition planning and program management as acting head of research and business development operations since 2002. Angie holds a Bachelor of Science from Tarleton State University and a certificate in entrepreneurial studies from Southern Methodist University.

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