Are you looking to acquire a company to expand your existing business?
Or are you developing an exit strategy and want to cash in on your non-core assets by selling your business or divesting?
Or maybe you’re working on a talent succession plan and aren’t sure whether to sell the company outright, or have the company’s management buy out existing shareholders, or through some other means?
All of the above are motivations and reasons for corporate mergers and acquisitions. M&A is a long and challenging process that requires a lot of effort, time, and effort.
Whether you want to acquire another business or sell your own business, in this article, we will explain the basic process and steps of the entire merger and acquisition for you step by step.
Basically, to sell a business, this type of M&A transaction can be divided into five stages:
Phase 1: Preliminary preparations
Preliminary preparation is an extensive and complex phase that aims to allow a company to proceed with its M&A activities without hindrance. These preparations mainly include the following:
- Discussion and formulation of M&A strategy
- Business Valuation
- vendor due diligence
- Preparation of project outline (teaser) and project introduction (information memorandum)
Each of the above requires extensive preparatory work to ensure that the entire M&A activity process can achieve the seller’s M&A objectives and maximize shareholder value.
Stage 2: Screening buyers
Once the preparations are in place, the seller can start looking for a suitable buyer in the market. At this stage, the seller needs to know very clearly to who they are releasing their business information to because this information is all the business secrets of the company.
Broadly, potential buyers can be divided into two categories: strategic and financial.
Strategic buyers are often leaders in related industries, or direct competitors of sellers, and generally prefer companies in the same or related industries to achieve synergy in investment choices. Due to the seller’s concerns about the potential leakage of strategic buyers, we will be more careful to screen and ensure that only qualified buyers (for example, have sufficient funds for acquisition activities) will be included in the candidate buyers. inside the list.
Financial buyers refer to investment institutions, such as private equity firms, who generally do not directly participate in the operation and management of investment companies, because their ultimate goal is to convert the investment into a future when they exit the investment. income.
Once this shortlist of potential buyers is finalized, you can begin distributing project briefs to these potential buyers and use this to attract buyer interest.
Stage 3: Buyer Bidding
When potential buyers are interested in the information received and want to know more about the details of their projects, the seller will then issue a project introduction to potential buyers. At this stage, potential buyers will have many preliminary questions about the project, which the seller needs to answer. We will also invite buyers and sellers to conduct an initial meeting and communication for this project.
On the other hand, potential buyers will conduct research on the project, conduct preliminary assessments based on the information provided by the seller and conduct preliminary due diligence (such as competitor analysis, market analysis, financial estimates, company valuation, etc.). When a potential buyer completes its initial assessment, it submits a non-binding term sheet to the seller, including its intended bid and key terms. The final implementation of this term sheet will depend on the outcome of due diligence.
Stage 4: Due Diligence
If the seller is satisfied with the terms submitted by the potential buyer, the seller may allow the potential buyer to conduct a series of detailed due diligence checks on its company. During this process, the seller should set a realistic timetable for potential buyers to complete due diligence and submit a legally binding bid (final binding offer) within a certain period of time. Generally, due diligence can take anywhere from 30 days to 90 days.
Due diligence can be divided into:
- Financial due diligence (investigating its financial position and data)
- Tax due diligence (investigating their tax status and arrears)
- Legal due diligence (investigate all legal documents)
- Commercial due diligence (investigating the feasibility of business operations)
As part of the preparatory process, assuming that seller due diligence has been completed, it means that there will be no more “surprises” in this transaction. However, there are usually many deal-breakers at this stage.
If no unusual and significant issues are found during this due diligence process, the potential buyer will finally submit a legally binding tender from the seller.
Stage 5: Transaction Completion
Once both the buyer and the seller agree to the terms of this legally binding tender, the preparation of the appropriate legal documents (eg, sale and purchase agreement) and the transfer of shares and the payment of merger fees can begin.
At this stage, buyers and sellers should engage relevant legal advisors or M&A lawyers to prepare their legal documents.
The five stages mentioned above basically cover the entire M&A process and are equally important to both buyers and sellers. Although this M&A guide looks simple, it does not mean that it is a simple M&A operation process. Here, it is especially important to ensure that all stages are completed in a structured and controlled manner to ensure that both buyers and sellers can achieve their respective M&A goals.
An M&A activity generally takes 6 months to 2 years to complete, depending on the complexity of the M&A transaction.
Therefore, whether it is a merger or acquisition, bosses need to prepare as early as possible, because mergers and acquisitions is a complicated and lengthy process.
Are you also considering corporate mergers and acquisitions?
We have always believed that bosses should focus on building the value of the business.
We also firmly believe that with the assistance of our YYC professional corporate advisory team, all your M&A transactions will be successfully completed.
Don’t hesitate, to contact us now! We will give professional advice on your M&A plan.
Just as you are a leader in your industry, we are a leader in M&A consulting. Let us assist you to complete your merger and acquisition together, so as to achieve the goal of a win-win for all parties!