A Startup’s Step-By-Step Guide To The M&A Process

Mergers and acquisitions (M&A) refer to the consolidation of various businesses and assets through a series of financial transactions. Mergers are agreements between two or more companies to merge into one, whereas acquisitions are agreements in which one company acquires the majority of the shares of another company to gain control of it. 

Both involve various stages, and the transaction can take anywhere from six months to several years to complete. An M&A process typically includes the following stages:

1. 1. Creation Of A Target List: Before engaging in the M&A process, both companies compile a list of potential buyers or sellers. 
   2. Initiation Of Contact: Following the selection of specific companies from the list, contact is made with those companies to determine their level of interest. 
   3. Sending Teaser: To entice buyers, sellers send a teaser document to buyers that includes information about their products, ownership structure, and potential areas of growth. 
   4. Confidentiality Agreement: This is an important document that both parties must sign at the start of the transaction to keep the discussions and materials confidential. 
   5. Confidential Information Memorandum (CIM): CIM serves as a buyer’s handbook, providing all of the information the buyer needs to know about the company’s management, financial data, competition, and market opportunities, among other things. 
   6. Indication of Interest (IOI): Buyers express their interest in CIM by sending an Indication of Interest (IOI), which is a non-binding written offer that includes information about the sale price, transaction structure, and other important details. It also assists the seller in determining the market value of their company and carefully reviewing the buyer’s ability to complete the transaction.
   7. Meetings Between The Parties: After both parties have demonstrated their interests, they hold meetings to further the matter and better understand their compatibility to determine whether their business interests are compatible or not. 
   8. Letter of Intent (LOI): The buyer provides information about the price and the deal structure in this document.  It contains information about the closing dates, any break-up fees, the exclusivity period, and other terms of the transaction. LOIs are generally non-binding, but they can be made binding if the terms of the contract indicate such intent on the buyer’s part.
   9. Due Diligence Process: It is the stage at which the buyer goes over all of the documents provided by the seller to assess their risk and improve their decision-making process. The company examines the seller’s financials, intellectual property, customer base, any outstanding litigation, infrastructure, technology, inventory, production, and marketing plans.
   10. Purchase Agreement: It supersedes all prior LOIs and IOIs. It is legally binding and contains information about the final terms of the transaction, such as the final purchase price, closing date, warranties, executive provisions, and break-up fees. 
   11. Pre-Closing Period: In some transactions, there is a pre-closing period during which the parties must fulfil conditions such as government approvals and third-party consent. 
   12. Closing: When all of the conditions are met, funds are transferred between the buyer and seller. As a result, the transaction is completed and the buyer takes control of the company.