Mergers and acquisitions (M&As) are a fairly common business practice. It refers to the consolidation of companies or assets through a transaction. M&As can take place through several different types of transactions including takeovers, acquisition of shares and formation of joint ventures.
Here are the 5 key stages of any merger and acquisition transaction.
1. Target identification
When it comes to M&As it is important for both the buyer and the seller to be sure that they are partnering with the perfect company. There may be multiple interested parties, so it is helpful to narrow this down to reduce the workload for both parties.
You should also use this stage to identify any subsidiaries or related entities. You will need to know what industry they are part of, where they are located and the type of trade they do.
2. Valuation analysis
Once you have identified a potential company to buy, you will need to do a deep dive into any information you can find. This should include their customer base, financials, products and operations.
You will need to look at the overall standing of the company and see whether it is operating legally as well as being profitable. If you decide that it is not doing either of these things, then now is a good time to back out of the merger.
3. Negotiations
After you have conducted your investigation of the company and decided to move forward, the negotiations can begin.
Both sides will need to carefully consider all the assets and decide what to do with them. It is not just physical assets that need to be discussed. Digital assets can be anything from intellectual property rights to online social media accounts. To be certain that you are considering them properly, make sure you have a trusted firm of data protection lawyers on your team.
4. Conduct due diligence
The due diligence process is usually the most time-consuming part of an M&A. This is where you consider the target company from both an internal and external perspective. Due diligence helps to identify any liabilities and value.
Your legal team will look into any pending legal action or any past legal action, as well as intellectual property documents, credit reports and the structure relating to any other entities. As a lot of these checks are done with governmental bodies, the time scales can add up and take a while. Plus, the larger the target company, the more paperwork there is to pour over.
5. Deal closure
After the due diligence process has been completed, you can finally move on to closing the deal. This is the part of the procedure where you complete the legal paperwork and any declarations that are needed.
Once everything is signed off, the merger or acquisition has been completed and the business can begin its new chapter.