Mergers and acquisitions are complex and demanding transactions in which opportunities and risks are closely intertwined. The foundation of a successful company sale or merger/consolidation is a professional mergers and acquisitions process, which has largely emerged as a standard over the past 30 years and meets the expectations of market participants. Key success factors are the combination of a coherent strategy, a structured approach, and the support and preparation of experienced and competent advisors. Here you will learn everything you need to know about the process and the key transaction phases of a mergers and acquisitions process – from the strategic planning phase to completion and execution.
The M&A Process: 9 Steps on the Way to a Successful Company Sale
The mergers and acquisitions process begins with the strategic planning phase. This phase focuses on the motives underlying the sale decision and thus the key objectives to be achieved through the sale. When a corporation or a large corporate conglomerate divests a subsidiary, the primary focus is usually on concentrating on the core business and divesting non-core activities. The purchase price can then be used to acquire companies in the core business, for investments, or to service liabilities. Typical objectives here are achieving the highest possible sales price and a swift, secure, and discreet transaction.
In traditional medium-sized companies and family businesses, the complete sale of the company is usually sought in the absence of an internal family succession plan. This affects multiple systems: not only the company itself but also private assets and, in particular, family relationships. Here, too, the seller/owner typically places great value on a speedy, secure, and discreet process and aims to achieve the highest possible sales price to ensure financial security for the family. Furthermore, it is crucial for family businesses that their personal family-related aspects are understood and taken into account.
In addition, they usually attach great importance to preserving the corporate identity even after the acquisition by the buyer, as well as ensuring good prospects for further development and growth, especially for their employees. Since the motives and objectives behind the sale of the company are crucial, an experienced and professional mergers and acquisitions consultant should be involved right from this initial step.
The classic process of an M&A process
Step 2: Creation of sales documents: teaser and factbook
Before approaching potential buyers in the mergers and acquisitions process can begin, key sales documents must be prepared. These include the teaser and the factbook. The teaser is an anonymized, brief profile intended to arouse initial interest among potential buyers without revealing who and what. The most important sales document, however, is the factbook, which comprehensively presents the company being sold. It explains, among other things, the company profile, business model, product range, market situation, and financial data.
Step 3: Identifying potential buyers
In parallel with drafting the sales documents, the Mergers & Acquisitions team conducts extensive research into suitable buyers, which are compiled into a comprehensive longlist.
The focus is on four different investor groups, each of which invests according to its own, sometimes different, criteria. A primary distinction is made between:
- strategic investors (such as competitors, customers and suppliers, market participants) and
- financial investors, which include private equity firms or investment companies. In addition, there are
- A management buyout (MBO) refers to the acquisition of a company by the existing management,
- and a management buy-in (MBI) refers to the acquisition by new management. This option is particularly considered for companies with a relatively low enterprise value.
wealthy private individuals, often former or still active entrepreneurs, but also family offices in which family businesses have pooled their assets.
Step 4: Addressing the candidates
When compiling the longlist, strategic rationale, financial strength, and decision-making ability are assessed, as well as the relevant contacts within the company, including their addresses, telephone numbers, and email addresses. Ideally, their availability at the time of contact is checked in advance to avoid losing valuable time due to vacation or business trips.
Preliminary personal meetings can also be useful for key contacts to determine their general interest without revealing the target company. The actual approach to potential buyers then takes place quickly and, above all, simultaneously via email. An anonymized teaser and a confidentiality agreement are sent first. If a candidate is interested, they return the signed confidentiality agreement and then receive the detailed factbook.
To inform prospective buyers about the planned further process and requirements, they also receive a so-called procedure letter – either together with the factbook or a few days later. Candidates are often also offered a management presentation. In this approximately two-hour presentation, the prospective buyer introduces themselves to the management of the target company, and vice versa.
Step 5: Letter of Intent (LOI): A non-binding offer
If potential buyers signal serious interest in acquiring the company (less frequently, in a merger with an equally strong partner), the negotiation phase can begin. The Letter of Intent (LOI) kicks off the process. The candidate confirms their interest in purchasing the company in writing and submits an initial offer for the company with an indicative price. While the LOI is legally a non-binding declaration of intent, it already expresses interest and a certain commitment to the seller. The Mergers & Acquisitions advisor’s task is to generate bidder interest and competition throughout the entire process up to the LOI, thus ensuring the most advantageous bids possible. A company valuation prepared by the seller’s advisor provides the seller with additional assurance about the appropriateness of the bids.
Step 6: Due Diligence: Deep Insight into the Company
During the due diligence phase, the prospective buyer gains in-depth insight into confidential information about the company that is not publicly available. Typically, all relevant documents are made available in a data room. These include balance sheets, controlling reports, partnership agreements, and loan agreements. In addition to a thorough review of all financial, legal, and tax documents, a site visit, i.e., a tour of the company, is often included—in the manufacturing sector, this primarily includes the production facilities.
Step 7: Binding Offer: The binding price offer
Following due diligence and a comprehensive insight into the company’s strategy and financials, as well as its strengths and weaknesses, the buyer now has all the information relevant to their decision. Based on this, they submit a binding offer to the seller. However, the offer may deviate from the indicative price originally stated in the LOI due to new information.
Step 8: Negotiation phase
Now the (contract) negotiations begin, in which, in addition to the price, further conditions and details are determined and anchored in the company purchase agreement. One example of this is any guarantees, for which a cap is usually set, up to which the buyer can assert claims for damages. Since these negotiations are usually very extensive and complex, support from mergers and acquisitions consultants and lawyers is essential. Negotiating skills, experience, and expertise are particularly important here in order to reconcile the often differing expectations of the buyer and seller – especially the price expectations.
Step 9: Signing, Closing and Completion
Once both parties have finally reached an agreement, nothing stands in the way of the formal conclusion of the mergers and acquisitions process. The contracts are signed during the signing process. Following the signing, the public announcement of the company sale follows. The subsequent closing involves the actual completion of the transaction, i.e., the transfer of control of the company and the payment of the purchase price. However, depending on the size of the buyer in a certain market segment, approval from the antitrust authority may be required to complete the acquisition. For the seller, the transaction is largely complete at this point.
Conclusion: The Phases of a Successful M&A Process
The mergers and acquisitions process is a complex challenge consisting of numerous individual steps. In every transaction phase, the goal is to optimize the seller’s position in order to achieve the desired goals. This requires the highest level of professionalism in every phase – from the initiation to the integration phase: from the strategic planning phase, the preparation of the sales documents, the identification and approach of potential buyers, the letter of intent, due diligence, the binding offer, and the negotiation phase to the signing, closing, and completion, as well as post-merger integration. Successfully carrying out and completing the sale of a company requires not only a well-thought-out strategy and a professionally structured approach, but above all, the support of loyal, experienced, and competent mergers and acquisitions advisors.
