M&A, a common abbreviation for mergers and acquisitions, encompasses complex processes such as company acquisitions and mergers that affect entrepreneurs and investors alike.
The M&A process describes all the stages required for a successful Corporate transaction are necessary. This begins with the preparation phase and ends with a handover phase, which can extend over long periods of time depending on the application. The targeted transaction can take various forms ? from the Company sale for reasons of age to spin-offs, where, for example, a business unit is separated off as a company.
The entire M&A process has as its overarching goal a regulated and transparent reorganisation of the ownership structure for all parties involved. In this way, risks are minimised, negotiations are conducted on a fair basis and processes are optimised. In order to achieve these goals, experts, such as lawyers, tax advisors and a M&A consulting consulted.
Table of contents
M&A process flow
Basically, the M&A process can be divided into five superordinate phases:
- Preparation and contract initiation phase
- Phase of the company audit (Due Diligence)
- Contract negotiation phase
- Enforcement or implementation phase
- Integration and post-merger measures we could also call post-merger measures
Each of these phases is in turn subdivided into individual work steps that should be carried out with the utmost care. The scope of the phases always depends on the individual application.
Preparation and contract initiation phase
The first phase, which initiates a mergers & acquisitions process, is characterised by information gathering and preparation. The company to be sold is analysed and the necessary documents are professionally prepared. In addition, the Calculate enterprise valuein order to determine an achievable purchase price. In consultation with the seller, important key data for the further procedure and a precise M&A strategy discussed. The interim result is a set of process objectives. In this first step it is also decided whether a bidding process (structured process with several interested buyers in parallel) or an individual search process for a suitable successor and buyer will be implemented.
The search for a buyer and the initial contact with a potential buyer, which should be as anonymous as possible, also fall into the first phase. In this early phase it is important that sensitive data is treated confidentially. If the intention to sell becomes known, this can have negative consequences for employees, suppliers and customers. At the end of the clarification of fundamental questions, there is a declaration of intent, the so-called ?Letter of Intent?which, although not compulsory, is advisable.
Due diligence phase (due diligence)
The Due diligence (due diligence of the buyer) takes on a special role, as its outcome significantly influences the successful outcome of the M&A process. It is a careful examination of all relevant areas of the company. As a rule, the Due Diligence The potential buyer is looking for as accurate a picture as possible of the profile of strengths, weaknesses, opportunities and risks of the object of purchase. The focus is on the Company sale taxes, as well as economic and legal information, whereby the focus may be different depending on the case.
Opposite her is the Vendor Due Dilligence, a company audit conducted by the Seller from Company sale is carried out.
Negotiation phase of the company purchase agreement
If the due diligence has not revealed any issues that are of concern for the potential Company acquisition K.O. criteria, the process moves to the negotiation phase. This step should always take place on an equal footing. Naturally, the seller is interested in the highest possible sales price, while the company buyer wants to pay a low price. The basis for an appropriate sales price is the Business valuation. It is in the nature of things that valuation procedures have to be reconciled between buyer and seller and, at the same time, different perspectives on certain parameters can lead to divergent value assessments.
On this basis, arguments can be presented in favour of one side or the other. A fair negotiation is in the interests of both parties, who often have to co-operate with each other over longer periods of time. The result of this phase is a Company purchase agreement. For the subsequent purchase contract negotiations, we always recommend involving a neutral third party who is not emotionally involved.
Completion phase or implementation phase (signing and closing)
The signing of the purchase contract represents the transition between negotiation and execution. The so-called Signing is the beginning of the enforcement phase Closing. The agreements set out in the company purchase agreement are implemented, whereby legal framework conditions must also be observed. Depending on the extent of the M&A transaction, the cartel office must be informed or information must be provided to investors.
Integration and the post-closing measures (post-merger integration, handover)
The transition from seller to buyer may take different periods of time and is referred to as a Post Merger Integration is the term used. Rarely can a company change ownership ‘overnight’. Depending on the extent of the prior agreements and clauses in the purchase contract, a Integration for several months or even several years be necessary.
Conceivable examples are introductions to existing operating procedures or introductions to important customers or partners. This phase can only be carried out smoothly if the previous negotiations have reached a result that is satisfactory for all parties involved.
M&A process duration
It is not possible to give a general indication of the duration of an M&A process. Nevertheless, experience shows that guidelines can be given for individual stages and thus also for the entire duration. The strongly varying Duration of the handover phase has already been described. However, the first phase can also require a lot of patience due to the lengthy search for potential buyers. In special sectors or with special requirements for the buyer, months may well pass before the first talks are scheduled.
A good time classification can be given for the duration between the first contact with the buyer and the conclusion of the contract: On average, about 4 ? 6 months should be planned here. Although special circumstances may allow for longer or shorter periods, half a year is considered a suitable guideline.
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M&A projects
A project in the field of mergers & acquisitions stands and falls with various factors. If the aspects mentioned below are taken into account and implemented at an early stage, the course is set for a successful transaction.
Success factors M&A projects
It is obvious that an M&A project can only be successfully concluded if both seller and buyer can reach an agreement that satisfies both sides. However, this is by no means dependent on suitable parties finding each other by chance. The success of a project can and should be influenced within the scope of possibilities.
The first priority here is a Clear communication and transparency.
On the seller’s side, questions need to be clarified from the outset, such as: Which values should the buyer uphold as far as possible? Such preconditions must be clearly communicated to the buyer side. If both sides are informed transparently about wishes, goals and preconditions, the likelihood of unpleasant surprises that otherwise only emerge later is reduced.
As stated in the section on the M&A process duration has been explained, the exact duration of a transaction cannot be predicted. If the time frame is provided with sufficient safety buffer, the chance of success increases. However, even if there is time pressure, clear indications should be given. If a process must be completed in a certain amount of time for given reasons, efforts can be focused in this direction from the beginning.
The question of the price expectations of buyer and seller is of central importance. Fair negotiations at eye level are based on a serious business valuation and a weighing of realistic arguments for one side or the other. Ideal values can be taken into account, but they must have an appropriate influence on the evaluation.
The M&A process is not regulated by law, but nevertheless the M&A process phases adhered to become. If the individual steps are carried out carefully, this is the right way for a positive conclusion.
Last but not least, an experienced team of M&A advisors determines the success or failure of an M&A project. Mergers & Acquisitions are not an area that can only be learned theoretically. The practical processes harbour stumbling blocks that can only be eradicated through experience. When the targeted sums are brought before one’s eyes, a project should not be jeopardised by suboptimal advisors.
10 reasons why M&A projects or M&A processes can fail
| 1. the ability to transfer is not given |
| 2. unreasonable expectations of the purchase price |
| 3. insufficient efforts in the Buyer search |
| 4. preparation of the purchase contract by the other party |
| 5. no agreement on liability or warranties |
| 6. pension commitments / pension provisions |
| 7. legal issues or tax problems |
| 8. aborting the Basis of trust of the parties |
| 9. rejection by the potential successor |
| 10. shortcomings of the organisation |
M&A process in insolvency proceedings
The M&A process with regard to insolvent companies is not fundamentally different from the processes presented so far. The only major difference is that potential buyers are informed about the insolvency proceedings. This results in different objectives for the transaction.
In many cases, the Insolvency proceedings the result of a worst-case scenario in which the goal can be described as ’saving what can be saved’. Rarely is the objective more conservative and only envisages minimising job cuts or preserving certain locations.
This initial situation also limits the negotiations and the possible sales prices. Experience shows that M&A advisors can be of great assistance here. This applies to both large insolvencies and insolvency proceedings of small and medium-sized companies.
M&A consulting
How do you find experienced and reputable M&A advice?
KERN has many years of expertise and is your companion for a successful M&A process. We have completed M&A transactions in the following sectors: Automotive Construction, Services, Industrial, Retail, Healthcare, Media, Technology, Transport and Logistics and many more.
Conclusion
The M&A process usually follows a clear structure, which should be maintained for a successful conclusion. Preparation and company audit are followed by conclusion of the contract and handover of the company. Different periods of time should be planned for the entire process, with six months being an orientation for the minimum. A positive conclusion is achieved through transparency, clear communication and professional support. The latter also avoids common mistakes that lead to the failure of the transaction, or at least advises on such problems.
FAQ
In M&A, all the necessary steps are carried out to achieve a successful corporate transaction. The goal is a positive agreement between seller and buyer.
M&A comprises various phases from preparation to signing of the contract including handover of the company. The intermediate stages primarily include due diligence and contract negotiations.
An M&A advisor accompanies the seller or buyer through all steps to a successful transaction. He supports with expertise and a network of external professionals.
Due diligence typically takes between a few weeks and several months, depending on the size and complexity of the company and the scope of the information to be reviewed.
A company should be sold when market conditions are favourable, the company value is high, or the owner’s personal goals and circumstances suggest this.
The best way to sell a company is through careful planning, choosing the right advisors (such as investment bankers and lawyers), and targeting potential buyers to get the best price.
The value of a company is often calculated using methods such as discounted cash flow analysis, comparative analysis with similar companies or valuation based on earnings multiples. For a practical assessment, an online company value calculator can be used, which utilises these methods and provides a quick estimate.
