Mergers and acquisitions (M&A) are complex and demanding transactions in which opportunities and risks are closely intertwined. The foundation of a successful business sale or merger lies in a professional M&A process, which has largely become the standard over the last 30 years and meets the expectations of market participants. Key success factors include a combination of a coherent strategy, a structured approach, and the support and preparation provided by experienced and competent advisers. Here you will find everything you need to know about the procedure and the key transaction phases of an M&A process – from the strategic planning phase through to closing and completion.
The M&A Process: 9 Steps on the Way to a Successful Company Sale
Step 1: Strategic planning phase
At the outset of the M&A process, the focus is on the motives underlying the decision to sell and, consequently, on the key objectives to be achieved through the sale. When a group or a large conglomerate divests itself of a subsidiary, the primary aim is usually to focus on the core business and divest non-core activities. The purchase price realised can then be used to acquire companies in the core business, for investments or to service liabilities. Typical objectives here are to achieve the highest possible sale price and to ensure a swift, secure and discreet transaction process.
In traditional small and medium-sized enterprises and family businesses, the complete sale of the company is usually sought when there is no internal family succession plan in place. This affects several ‘areas’ at once: not only the business itself, but also private assets and, in particular, family relationships. Here too, the seller/owner usually attaches great importance to a swift, secure and discreet process and wishes to achieve the highest possible sale price to provide financial security for the family. Furthermore, in the case of family businesses, it is crucial that their personal family circumstances are understood and taken into account.
Furthermore, they usually attach great importance to the company’s identity being preserved even after the takeover by the buyer, as well as ensuring good prospects for further development and growth, particularly for their employees. As the motives and objectives behind the sale of the company are of crucial importance, an experienced and professional M&A adviser should be involved right from this initial stage.
Step 2: Preparing the sales documents – teaser and fact book
Before approaching potential buyers in the M&A process can begin, key sales documents must be prepared. These include the so-called teaser and the fact book. The teaser is an anonymised brief profile designed to spark initial interest among potential buyers without revealing the identity of the seller. The key sales document, however, is the fact book, which provides a comprehensive overview of the company being sold. It sets out, amongst other things, the company profile, the business model, the product range, the market situation and the financial data.
Step 3: Identifying potential buyers
Whilst drafting the sales documents, the M&A team is already conducting extensive research into suitable buyers, which is compiled into a comprehensive longlist.
The focus is on four different investor groups, each of which invests according to its own, sometimes differing, criteria. The primary distinction here is between:
- strategic investors (such as competitors, customers and suppliers, and other market players) as well as
- financial investors, which include private equity firms or investment companies. In addition, there are
- high-net-worth individuals, often former or current entrepreneurs, but also family offices where family businesses have pooled their assets.
- A management buy-out (MBO) refers to the acquisition of the company by the existing management,
- whilst a purchase by new management is referred to as a management buy-in (MBI). This option is primarily considered for companies with a relatively low enterprise value.
Step 4: Addressing the candidates
When compiling the long list, we assess the strategic rationale, financial strength and decision-making authority, whilst also identifying the relevant contacts within the company, including their address, telephone number and email address. Ideally, we check their availability in advance to ensure that no valuable time is wasted due to holidays or business trips.
Preliminary face-to-face meetings can also be useful with key contacts to gauge their general interest without revealing the target company. The actual approach to potential buyers is then made quickly and, above all, simultaneously via email. First, the anonymised teaser and a confidentiality agreement are sent out. If a candidate is interested, they return the signed confidentiality agreement and subsequently receive the detailed fact book.
To inform potential buyers about the planned next steps and the requirements, they are sent a ‘Procedure Letter’ – either alongside the Factbook or a few days later. In addition, candidates are often invited to attend a management presentation. During this presentation, which lasts around two hours, the potential buyer introduces themselves to the management of the target company, and vice versa.
Step 5: Letter of Intent (LOI) – A non-binding offer
Once potential buyers have signalled a serious interest in acquiring the company (or, less commonly, in merging with an ‘equal partner’), the negotiation phase can begin. The process begins with the Letter of Intent (LOI), in which the prospective buyer confirms their interest in the purchase in writing and submits an initial offer for the company with an indicative price. Although the LOI is, strictly speaking, a non-binding declaration of intent, it already expresses interest and a certain degree of commitment towards the seller.
The M&A adviser’s role is to generate bidder interest and competition throughout the entire process up to the LOI, thereby ensuring the most favourable bids possible. A company valuation prepared by the seller’s adviser provides the seller with additional assurance regarding the appropriateness of the bids.
Step 6: Due Diligence – An in-depth look at the company
During the due diligence phase, the prospective buyer gains in-depth access to confidential company information that is not publicly available. As a rule, all relevant documents are made available in a data room. These include, for example, balance sheets, management reports, articles of association and loan agreements.
In addition to a detailed review of all financial, legal and tax documents, a site visit – that is, an inspection of the company’s premises – is often arranged; in the manufacturing sector, this primarily involves 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
The (contractual) negotiations are now due to take place, during which, in addition to the price, further terms and details will be agreed and set out in the company purchase agreement. One example of this is potential guarantees, for which a cap is usually set, up to which the buyer can claim damages.
As these negotiations are usually very extensive and complex, support from M&A advisers and lawyers is essential. Above all, it is a matter of negotiating skills, experience and expertise to reconcile the often differing expectations of buyer and seller – particularly regarding 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 M&A process. The contracts are signed at the signing ceremony. The signing is followed by the public announcement of the sale of the company.
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, if the buyer is of a certain size within a specific market segment, approval from the competition authorities may be required before the acquisition can be finalised. For the seller, the transaction is largely complete at this stage.
Conclusion: The stages of a successful M&A process
The M&A process is a complex challenge comprising numerous individual steps. At every stage of the transaction, the aim is to optimise the seller’s position in order to achieve the desired objectives. And to do this, the highest level of professionalism is essential at every stage – from the initial approach right through to the integration phase: from the strategic planning phase, the preparation of sales documents, the identification and approach of potential buyers, through the letter of intent, due diligence, binding offer and negotiation phase, right up to the signing, closing and completion, as well as the post-merger integration. To successfully execute and complete the sale of a company, it takes not only a well-thought-out strategy and a professional, structured approach, but above all the support of loyal, experienced and competent M&A advisers.
