Once a potential target has been identified, an M&A project usually follows the same following five steps:
1. Due diligence
For acquiring companies, due diligence is a critical process that cannot be overlooked. Due diligence not only to assess potential financial, legal, and regulatory exposures, but also gives insights into the target company’s structure, operations, supply chain, culture, human resources, supplier and customer relationships, competitive positioning, and future outlook.
Done right, due diligence is a way to spot potential deal-killers/shapers and provide assurances that the acquisition is the right decision at the right price.
Done fully, due diligence can also give management a deep, holistic view of the target company that can later inform integration of the target’s people and business.
Due dilligence lasts until the deal is closed. However, following the initial due diligence, the (what I call) pre-closing phase starts. In the pre-close phase, the buyer will not only try to understand the Target’s business operations, but will also start at looking at integration of the target company’s business into its own.
The due diligence and pre-closing phase is to answer 2 basic questions:
1. Do we want to acquire the target company? and
2. What price are we willing to pay?
3. Master Purchase Agreement
Once buyer and seller agree on a purchase price, warrenties and any other business and financial conditions of the contemplated take over of the target company, all needs to be put down into a legal agreement (or a set of legal agremeents).
This may be only a share transfer agreement, but usually is a number of agreements (like certain warranties, disclosures, raw material supply agreements, (transitional) services agreement, IP ownership transfer or license agreements, etc.
Following the signing of the legal agreements, the deal will close. This effectively means that ownership of the target company is officially transfered to the new owner and the new owner pays the purchase price.
The closing is not always imediately after signing of the legal agreements. Sometimes it takes a few days, or even weeks or months after the signing of the agreement for the deal to close. This can be for a number of reasons. The usual suspects are regulatory approval or time needed to work out a business separation plan at the level of the seller and/or business integration planning at the buyer side.
5. Post-closing integration
Post closing is where the real fun starts: business integration.