Mergers and acquisitions are parts of corporate strategies that deal with buying / selling or combining of business entities, which in turn, help a company to grow quickly. However, merger and acquisition process is quite a complex process that consists of a few steps. Before going for any merger and acquisition, both the companies need to consider a few points and also need to go through some distinct steps. The merger and acquisition process is also a big point of concern for the companies involved in the deal, as the process could be full of risk and uncertainty. However, prior effective planning and research could make the process easy and simple.
Steps of Mergers and Acquisition Process
The process of merger and acquisition has the following steps:
Before you go for any merger and acquisition, it is of utmost important that you must know the present market value of the organization as well as its estimated future financial performance. The information about organization, its history, products/services, facilities and ownerships are reviewed. Sales organization and marketing approaches are also taken into consideration.
The decision to sell business largely depends upon the future plan of the organization – what does it target to achieve and how is it going to handle the wealth etc. Various issues like estate planning, continuing business involvement, debt resolution etc. as well as tax issues and business issues are considered before making exit planning. The structure of the deal largely depends upon the available options. The form of compensation (such as cash, secured notes, stock, convertible bonds, royalties, future earnings share, consulting agreements, or buy back opportunities etc.) also plays a major role here in determining the exit planning.
Structured Marketing Process
This is merger and acquisition process involves marketing of the business entity. While doing the marketing, selling price is never divulged to the potential buyers. Serious buyers are also identified and then encouraged during the process. Following are the features of this phase.
- Seller agrees on the disseminated materials in advance. Buyer also needs to sign a Non-Disclosure agreement.
- Seller also presents Memorandum and Profiles, which factually showcases the business.
- Database of prospective buyers are searched.
- Assessment and screening of buyers are done
- Special focuses are given on he personal needs of the seller during structuring of deals.
- Final letter of intent is developed after a phase of negotiation.
Letter of Intent
Both, buyer and seller take the letter of intent to their respective attorneys to find out whether there is any scope of further negotiation left or not. Issues like price and terms, deciding on due diligence period, deal structure, purchase price adjustments, earn out provisions liability obligations, ISRA and ERISA issues, Non-solicitation agreement, Breakup fees and no shop provisions, pre closing tax liabilities, product liability issues, post closing insurance policies, representations and warranties, and indemnification issues etc. are negotiated in the Letter of Intent. After reviewing, a Definitive Purchase Agreement is prepared.
Buyer Due Diligence
This is the phase in the merger and acquisition process where seller makes its business process open for the buyer, so that it can make an in-depth investigation on the business as well as its attorneys, bankers, accountants, tad advisors etc.
Definitive Purchase Agreement
Finally Definitive Purchase Agreement are made, which states the transaction details including regulatory approvals, financing sources and other conditions of sale.