An M&A, or a merger and acquisition, refers to the process where two companies combine (merger) or one company purchases another (acquisition).
In the simplest form of M&A, business owners completely exit the company by transferring 100% company shares to the buyer for cash consideration. Alternatively, business owners can opt to sell an individual business unit/subsidiary, or significant assets such as machinery, intellectual property, or real estate, to buyers in exchange of cash, shares of the buyer, or both.
What is a typical M&A process?
M&A timelines can vary significantly depending on the deal complexity, size of the transaction and market environment. A typical M&A transaction can last from six months to a year and will involve the following stages:
Preparation
The seller prepares key company information that will likely be requested during the Request for Information (“RFI”) by the prospective buyer. Such information will include historical financials, financial projections and marketing materials. A key document will be the company’s corporate profile, which should include a thorough yet succint overview of the company’s operations, strengths and future opportunities.
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At this juncture, the seller may appoint an advisor to support the M&A process. The advisor will reach out to potential buyers to introduce the M&A opportunity, typically on a redacted (no-name) basis. The advisor will then shortlist interested buyers that are aligned to the seller’s ideal buyer profile. Thereafter, a Non-Disclosure Agreement (“NDA”) will be signed between both parties to protect the privacy of the impending information exchange. The advisor will setup a dataroom to exchange the information.
At this point, the seller should expect guidance from the advisor on how to position the company to maximise the chances of a successful transaction.
After reviewing the information provided in the dataroom, interested buyers may submit a non-binding offer. Such an offer will indicate terms of the M&A, including consideration (monetary and/or non-monetary), due diligence requirements, pre-conditions, exclusivity clauses and closing timeline.
Due Diligence
If the seller chooses to accept one of the offers, the buyer and seller will progress into a due diligence period, which is a comprehensive process of evaluating the financial, legal, operational and strategic aspects of the seller’s business. Due diligence periods are typically exclusive in nature, although it is not uncommon for larger transactions to be non-exclusive. Of late, ESG due diligence is becoming increasingly commonplace.
An advisor acting for a seller will support the preparation of the due diligence documents and the evaluation of the non-binding offer, while an advisor acting for a buyer will support the buyer in analysing the data and in making a final valuation.
Negotiation
Depending on the results of the due diligence, the potential buyer will decide whether or not to submit a final offer. The final offer will include key terms of the transaction. Key terms can include but are not limited to the final consideration, proposed moratoriums, payment structure, non-compete provisions and post-closing adjustment clauses. As the final offer is being negotiated, lawyers acting on behalf of both sides will draft the final Sales and Purchase Agreement (“SPA”).
Completion
After all the pre-conditions specified in the SPA are fulfilled, the seller will transfer the title of the business or assets to the buyer in return for the agreed consideration. Depending on the terms of the SPA, an escrow arrangement may be put in place to manage risks and post-closing processes.
Who are the key parties in an M&A?
Seller
The Seller typically involves select senior management in the process to provide detailed information about the company. If the buyer’s post-acquisition plan involves retention of the senior management, they may request to meet with the senior management during the due diligence stage.
Buyer
The individual or entity interested in purchasing the business. In order to maximize company valuation, sellers usually engage more than one buyer in the process to create competitive tension. Depending on buyer’s experience and scale, they may also engage financial and legal advisors.
Advisor
Professionals who represent either the seller or the buyer to manage the business sale process. Advisors usually act as the point person between the seller, management, potential buyers, buyers’ advisors and seller’s legal advisor throughout the process.
Lawyer
Attorneys who draft and finalize the sales agreement and ensure that the transaction complies with all legal requirements from the seller’s perspective.
Escrow Agent
An escrow agent is a neutral third party responsible for holding and managing funds during a transaction. The escrow agent holds the funds set aside and disburses it when certain conditions are met or risks resolved.
Engaging an Advisor
Engaging a professional advisor to sell your company is critical to maximising value and ensuring a smooth transaction process. A trusted advisor acts as your advocate, aligning the process with your goals.
At GCA, our M&A Readiness and M&A Advisory services are designed to position business owners for success. Each engagement combines a tailored deal strategy, execution expertise and deep market insight with the the owners’ vision. Reach out to your GCA representative today for a conversation.
M&As simplified
What is a Merger & Acquisition?
An M&A, or a merger and acquisition, refers to the process where two companies combine (merger) or one company purchases another (acquisition).
In the simplest form of M&A, business owners completely exit the company by transferring 100% company shares to the buyer for cash consideration. Alternatively, business owners can opt to sell an individual business unit/subsidiary, or significant assets such as machinery, intellectual property, or real estate, to buyers in exchange of cash, shares of the buyer, or both.
What is a typical M&A process?
M&A timelines can vary significantly depending on the deal complexity, size of the transaction and market environment. A typical M&A transaction can last from six months to a year and will involve the following stages:
Preparation
The seller prepares key company information that will likely be requested during the Request for Information (“RFI”) by the prospective buyer. Such information will include historical financials, financial projections and marketing materials. A key document will be the company’s corporate profile, which should include a thorough yet succint overview of the company’s operations, strengths and future opportunities.
Search
At this juncture, the seller may appoint an advisor to support the M&A process. The advisor will reach out to potential buyers to introduce the M&A opportunity, typically on a redacted (no-name) basis. The advisor will then shortlist interested buyers that are aligned to the seller’s ideal buyer profile. Thereafter, a Non-Disclosure Agreement (“NDA”) will be signed between both parties to protect the privacy of the impending information exchange. The advisor will setup a dataroom to exchange the information.
At this point, the seller should expect guidance from the advisor on how to position the company to maximise the chances of a successful transaction.
After reviewing the information provided in the dataroom, interested buyers may submit a non-binding offer. Such an offer will indicate terms of the M&A, including consideration (monetary and/or non-monetary), due diligence requirements, pre-conditions, exclusivity clauses and closing timeline.
Due Diligence
If the seller chooses to accept one of the offers, the buyer and seller will progress into a due diligence period, which is a comprehensive process of evaluating the financial, legal, operational and strategic aspects of the seller’s business. Due diligence periods are typically exclusive in nature, although it is not uncommon for larger transactions to be non-exclusive. Of late, ESG due diligence is becoming increasingly commonplace.
An advisor acting for a seller will support the preparation of the due diligence documents and the evaluation of the non-binding offer, while an advisor acting for a buyer will support the buyer in analysing the data and in making a final valuation.
Negotiation
Depending on the results of the due diligence, the potential buyer will decide whether or not to submit a final offer. The final offer will include key terms of the transaction. Key terms can include but are not limited to the final consideration, proposed moratoriums, payment structure, non-compete provisions and post-closing adjustment clauses. As the final offer is being negotiated, lawyers acting on behalf of both sides will draft the final Sales and Purchase Agreement (“SPA”).
Completion
After all the pre-conditions specified in the SPA are fulfilled, the seller will transfer the title of the business or assets to the buyer in return for the agreed consideration. Depending on the terms of the SPA, an escrow arrangement may be put in place to manage risks and post-closing processes.
Who are the key parties in an M&A?
Seller
The Seller typically involves select senior management in the process to provide detailed information about the company. If the buyer’s post-acquisition plan involves retention of the senior management, they may request to meet with the senior management during the due diligence stage.
Buyer
The individual or entity interested in purchasing the business. In order to maximize company valuation, sellers usually engage more than one buyer in the process to create competitive tension. Depending on buyer’s experience and scale, they may also engage financial and legal advisors.
Advisor
Professionals who represent either the seller or the buyer to manage the business sale process. Advisors usually act as the point person between the seller, management, potential buyers, buyers’ advisors and seller’s legal advisor throughout the process.
Lawyer
Attorneys who draft and finalize the sales agreement and ensure that the transaction complies with all legal requirements from the seller’s perspective.
Escrow Agent
An escrow agent is a neutral third party responsible for holding and managing funds during a transaction. The escrow agent holds the funds set aside and disburses it when certain conditions are met or risks resolved.
Engaging an Advisor
Engaging a professional advisor to sell your company is critical to maximising value and ensuring a smooth transaction process. A trusted advisor acts as your advocate, aligning the process with your goals.
At GCA, our M&A Readiness and M&A Advisory services are designed to position business owners for success. Each engagement combines a tailored deal strategy, execution expertise and deep market insight with the the owners’ vision. Reach out to your GCA representative today for a conversation.
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