Mergers and Acquisitions: The Transaction’s Key Stages

M&A activity has continued to outpace the feverish pace of deals for 2021. According to the article from Wolters Kluwer, “the U.S. mergers and acquisitions market in 2021 was unprecedented, with a record $2.9 trillion in transactions (up 55% from $1.9 trillion in 2020) accounting for almost 60% of all global deals based on announced value (up from less than 50% in 2020).”

Buyers are ready to acquire firms in today’s seller-friendly business market and are willing to pay the top price. As a result, many firms nowadays prefer to sell their company or enter the world of mergers and acquisitions in order to achieve inorganic growth and success. Many firms are overly confident to embark on an M&A transaction without fully understanding the transaction’s complexities. Determining whether or not a firm is ready to sell is simply the first step. It’s crucial to not only understand why firms want to enter M&A activity but also to understand the processes behind the transaction in order to be prepared and start planning one to two years ahead of time.

Mergers and Acquisitions (M&A) is a long and complex process. Each deal is unique and has its own level of complexity. The completion of a merger can involve a staggering number of details. But one thing remains constant: all transactions must follow specific or similar processes in order to be successful.

If you’re looking to sell your firm, here’s an overview that will give you a rudimentary view of the complex process. These fundamental processes should help firms make the selling process run smoothly and maximize any opportunities that may arise throughout the transaction.

The Important steps of an M&A deal

 1. Preparation

             A. Strategy Development

The M&A process begins with the development of a multifaceted strategy.  An M&A strategy can help in setting clear expectations for all parties involved. The development of the strategy should address what the firm aims to achieve or its end goal with the transaction, as well as how it expects to get there so that executives can gather the essential documents, financial data, and other information that will be vital in the future of the M&A process.

B. Identify Potential Partners

To engage in selling or buying a business, a firm must have potential buyers or sellers. They should start identifying potential targets in the market that fit their firm’s criteria. Sellers should make a list of possible partners and start reaching out to them. Competitors, vendors, and consumers are all viable M&A targets. The primary goal of this stage is to learn more about the targets and gauge their level of interest in such a deal.

2. Marketing

A. Contact buyers and deliver marketing materials

After establishing a target list, the buyer and seller should initiate contact in order to gauge more the buyer’s or seller’s level of interest. This is an exploratory stage in which firms can examine how they can fit together, whether their values are matched, and what synergies could be generated by joining together.

Potential partners who are interested will also sign a nondisclosure agreement (NDA), which will allow them to reveal important information about the firm via a confidential information memorandum (CIM). This is a detailed document that includes a business overview, industry trends, operational data, growth opportunities, and extensive financial data (historical and projections).

Once a firm decides to sell, it should also create a comprehensive package that formally showcases the firm to potential purchasers. A teaser is one type of marketing approach that a company can employ. It is a document sent by sellers to acquirers. It provides just enough information to pique the buyer’s interest and make them want to learn more. It displays top-level information such as its goods or services, unique selling factors, industry overview, ownership structure, possible growth areas, and high-level financials.

3. Perform Valuation, Negotiation, and Due Diligence

A. Valuation analysis

The acquirer requests that the target firm supply sufficient information (current financials, etc.) that will allow the acquirer to further examine the target, both as a business and as a possible acquisition candidate.

B. Negotiations

After developing various valuation models for the target firm, the acquirer should have enough information to craft a realistic offer; once the initial offer is delivered, the two companies can discuss conditions further.

C. Due Process

Due diligence is a lengthy process that begins once the offer is accepted. It aims to confirm or correct the acquirer’s  assessment of the target company’s value by conducting a thorough examination and analysis of every aspect of the  target company’s operations – including its financial metrics, assets and liabilities, customers, human resources, and so  on. 

4.Signing the contract and closing the deal

Assuming there are no unpleasant surprises during the due diligence process, the involved firms will proceed to sign the final contracts and complete the deal. There may be a pre-close period between signing and closing during which last measures are conducted to meet all closing requirements. When all of these requirements are completed, payments are exchanged to signal the official completion of the transaction.

5. Post deal integration

Once the transaction is completed, the acquired company’s full-scale integration may proceed. Both parties will have to work together to merge the two companies.

In addition, as the M&A occurs, the new business must create a post-acquisition strategy. This includes new financing choices and a revamped business plan that incorporates the new assets acquired in the M&A deal.

Conclusion:

The process of completing a merger can be cumbersome. With so many processes to take before, during, and after the merger and challenging scheduling concerns every step of the way, being prepared for the deal is vital. It is imperative to have a well-controlled and coordinated procedure geared to capture the benefits of the transaction while also maximizing the value shareholders gain from the sale. The company may have tremendous perceived value in the marketplace, but that value will not be realized if the sale process is not well thought out.

Are you ready to explore more the M&A Strategy?

If you’re planning to retire, sell your firm, or if your business needs to develop and grow, then M&A is the right move for you and your firm. It can be an excellent exit plan and a smart approach for improving the firm’s overall health, productivity, and bottom line.

We’ll make it easier for you in the process of preparation and identifying targets. Choose HWA Alliance of CPA Firms, Inc. as your firm’s ideal buyer and immediately reap the total value of M&A. We provide business owners convenient, creative, and value-maximizing solutions for developing and exiting their firms. We have successful M&A experience working across different state lines and different industries. Partner with us, and we can help you save your time, money, and resources by strategically positioning your firm to continue doing business under the umbrella of HWA Alliance.