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Overview of the
M&A Process Steps

The M&A Process Steps

What you will learn in this section:

  • What the typical M&A process steps are
  • How an M&A process timeline looks like
  • What the key doings and documents are in each step

The M&A Process follows a certain Structure

A sale of a company, a subsidiary or selected assets is usually a major event for companies and their stakeholders. The sales process spans over a period of multiple months. It consumes a large part of the resources of the management, employees and other individuals, while they must ensure the continuation of the daily operations. In order to deal with the high workload and ensure that the ongoing business is only marginally affected, often investment banks or consultants are hired, or own corporate development teams are created.

These transactions can take place via a broad auction with a large number of participants, a targeted process with only a few parties, or a negotiated sale with a single party.

No matter if these deals are done by the company’s team or investment bankers and structured as a broad, targeted and negotiated transaction, the process usually follows a certain structure as outlined in the following.

M&A Process Steps - Overview of the typical Sales Structure

In a typical structured sales process, the following M&A process steps take place. For a detailed timeline of the M&A process steps, please refer to the picture below.

1) Preparation Phase
2) First Bidding Round
3) Second Bidding Round
4) Final Negotiations and Winning Bidder
5) Signing and Closing

M&A sales process

M&A Process Steps - Preparation Phase

After the decision has been made to sell and a team has been appointed to assist on the transaction (the “advisor”), the advisor usually conducts a first sell-side due diligence, gathers all necessary documents and calculates a minimum purchase price that the transaction has to achieve. Following that, the advisor produces the marketing documents. These consist of a one to five pages long teaser document that outlines all relevant high-level information about the transaction, as well as the 50+ pages extended information memorandum that is sent to participants later in the process. Furthermore, a process letter is created that outlines the most important information on how the transaction is structured (timeline, instructions, necessary offer details by the bidder, ways of communication, etc.). Together with the process letter, a non-disclosure agreement is shared, which is a legal contract that governs how confidential information has to be treated.

M&A Process Steps - First Bidding Round

Following the preparation of all necessary documents, the advisor will reach out to potentially interested bidders by distributing the teaser document. After the initial screening of the teaser, the parties will have to sign the non-disclosure agreement (“NDA”) to gain access to the more detailed information memorandum (“IM”). Now they usually have one to two weeks of going through the IM and submitting their initial, non-binding offer (“NBO”) to the advisor. The NBO is a formal document that must contain certain items that are specified in the process letters. These could be purchase price assumptions, strategic rationale, plans concerning the current workforce, sources of funding, as well as issues and concerns.

M&A Process Steps - Second Bidding Round

Following the receipt of the non-binding offers of the participants, including their terms and conditions, the advisor will discuss these with their client and agree on which bidders will be let through into the second round of the bidding process. Often this decision is not only based on the offered price, but also on the plans for the current workforce, the assumed speed and certainty that the deal will take place (strategic investors are frequently subject to antitrust rulings, while financial investors often are not), key conditions and approvals, etc.

Once the selected bidders have been informed of being approved into the second round, the second process letter will be sent out. It outlines the schedule and requirements for phase two of the bidding process. Bidders will be granted access to a virtual data room (“VDR”) that contains all relevant information, including commercially sensitive information like e.g. supplier and employment contracts. Based on these documents, bidders usually appoint due diligence (“DD”) providers that now validate business assumptions and identify risks and lay them out in due diligence reports for their clients. The most commonly conducted DDs are financial, tax, legal and commercial and – with increasing popularity – the technical DD.

Further to the information presented in the VDR, bidders will be allowed to visit the company’s facilities, get to know the management, which will hold a so-called management presentation, and attend expert sessions with key staff of the company. After collecting all the necessary information, the bidder will need to get all relevant approvals by their boards or investment committees. Once they have collected the approvals, they submit their bids, secure funding and draft the binding offer letter (“BO”).

The submission of the binding offer officially ends the second bidding round. The process will now enter into the final phase, where a few remaining participants will negotiate the transaction details, and one party will eventually close the deal.

M&A Process Steps - Final Phase: Negotiations and Selecting Winning Bidder

Following the receipt of all binding offers, the advisor once more agrees with the client whom to let through into the final round. There are different ways to play the final round. Either only one party will be admitted and given an exclusivity period in which they have the sole right to sign the purchase agreement, while others are put on hold. Alternatively, multiple (usually two) parties are invited, and the most favorable deal will be accepted. In some cases, a “first come first serve” option is offered to keep competition and speed high.

The main work in the final phase has to be done on the selling and purchase agreement. Usually, the seller is preparing a first draft of the purchase agreement, which is uploaded to the VDR in phase two. The purchase agreement now becomes the main focus, as both parties have to mutually agree on all rights and obligations. The final preparation of the purchase agreement usually takes multiple rounds of back and forth between both parties’ lawyers.

M&A Process Steps - Signing and Closing

Once both parties have agreed on the terms and conditions, all transaction documents will be signed to contractually manifest the reciprocal obligations. Nevertheless, signing itself does not necessarily result in the actual transfer of the assets or shares. There might be certain conditions to be met (e.g. informing employees, carve-out of assets, regulatory approval) before the actual transfer can occur. The purchase price is due and the transaction fully completed upon meeting these conditions. It should be noted that parties can agree that the acquirer shall already receive the benefits of the acquired assets (and also bear related risks) from a date prior to signing. In other words, the economic transfer can occur at a point in time before signing (example: locked box mechanism). In case the transaction does not foresee any conditions precedent, signing and closing can fall on the same date.

You should now be able to answer to following questions:

  • How does a typical M&A process timeline look like?
  • How are the marketing documents called that are sent to potentially interested parties in a structured M&A sales process?
  • What is a process letter in general good for?
  • What are the sources of information for potential bidders?
  • What is an exclusivity period?
  • What is the difference between signing and closing?

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