Subject: The Three Stages of M&A: Preparation, Dating (ooo-lala), and Closing
Do you remember planning your wedding? Get ready!
More of a visual learner? Here is the topic in video.
The first stage of M&A is preparation. This involves developing marketing materials and the company story, as well as reviewing all relevant financial and non-financial records. This stage is critical because it sets the foundation for the entire M&A process. Companies need to prepare accurate and comprehensive financial records, including income statements, balance sheets, and cash flow statements. They also need to prepare non-financial records, including customer and supplier contracts, employee agreements, and any legal or regulatory issues. Every company has strengths and weaknesses, and your M&A advisor needs to know both.
In this stage, outside parties are introduced to the company in a confidential way. The goal of this stage is to find the right partner. This is often a complex and time-consuming process, as there should be multiple potential buyers who need to be evaluated.
During this dating phase, potential buyers will be provided with the marketing materials and financial records prepared in the first stage. They will also be asked to sign a non-disclosure agreement (NDA) to protect the confidentiality of the information provided. The potential buyers will then review the materials and ask questions to gain a deeper understanding of the company.
A well-organized dating phase could take somewhere between one to four months (sorry, no speed dating in M&A). Companies should be prepared to go on multiple dates before finding the right partner. The goal is to find a partner who has the resources, experience, and strategic vision to help the company achieve its goals and most importantly, is a strong culture match. A culture match is the first gating item in entering a relationship as it relates to M&A. Phase II ends upon the signing of a Letter of Intent (LOI)
The closing stage begins with the signing of a Letter of Intent (LOI), which is a little like an engagement ring. The LOI is a commitment to go forward together on the terms that have been agreed to. Assuming nothing unusual occurs, this phase ends at the closing which is typically 90 to 120 days. Having clear and accurate financial and non-financial materials and goodwill on both sides are critical to having a smooth close.
During the closing stage, the parties will work to finalize the details of the transaction, including the purchase price, structure of the deal, and any legal or regulatory issues. This stage is complex and requires the expertise of experienced M&A advisors, Lawyers, and Accountants. Companies need to be prepared to negotiate effectively and ensure that the terms of the deal are fair to both sides.