M&A process
M&A process
The M&A (Mergers and Acquisitions) process is a series of activities ranging from identifying the target company, searching for and evaluating the target business, due diligence, negotiation and signing, to completing the transaction and carrying out post-transaction tasks. Depending on the structure, scale, and characteristics of each transaction, the sequence and scope of work may be adjusted.
5 basic steps in the M&A process
An M&A transaction typically goes through five main stages. However, the actual process may involve additional steps such as signing confidentiality agreements, exchanging preliminary terms, obtaining approvals, or completing legal procedures before closing.
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01 Identify target |
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02 Search & Evaluate |
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03 Due Diligence |
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04 Negotiate & signing |
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05 Closing & transfer |
1. Define M&A objectives and strategies.
Before seeking a partner, the buyer needs to clearly define the reasons for the transaction and the desired outcome. The goal could be market expansion, product or technology acquisition, increased production capacity, access to new customers, expansion of the distribution chain, or portfolio restructuring.
The information that needs to be determined includes:
- Objectives and scope of the transaction.
- Criteria for selecting target businesses or assets.
- Scale and budget of investment.
- Funding sources and transaction financing options.
- The expected form and structure of the transaction.
- Desired ownership percentage or level of control.
2. Searching for and evaluating partners
After identifying the target, the buyer proceeds to search for and list suitable businesses or assets. This stage typically focuses on preliminary assessment before conducting a more in-depth due diligence.
Evaluation criteria may include:
- Industry and business model.
- Size, market share, and market position.
- Revenue, profit, and cash flow generation.
- Assets, technology, and resources.
- Customer base and distribution system.
- Outstanding legal issues or risks.
Before exchanging confidential information, the parties can usually sign a document. NDA (Non-Disclosure Agreement) to determine the scope of information to be shared and the confidentiality obligations of the parties.
Depending on the transaction, the parties may also exchange or sign documents. Term Sheet, Letter of Intent (LOI) or similar documentation to record the main principles and terms of trade before proceeding with the transaction.
3. Due Diligence – Business Assessment
Due Diligence is the process of conducting in-depth due diligence on a target company to verify information, identify risks, and provide a basis for valuation, structuring, and transaction negotiation.
The content that is typically reviewed includes:
- Finance: Financial statements, revenue, expenses, assets, liabilities, cash flow, and financial obligations.
- Legal aspects: Legal status, licenses, contracts, disputes, ownership, and legal obligations.
- Tax: The status of tax declarations and payments, amounts payable, and potential tax risks.
- Work: Business model, customers, suppliers, supply chain, and operational efficiency.
- Human resources and labor: Employment contracts, wages, insurance, and obligations towards employees.
- Intellectual property, technology, and data: Ownership, technology systems, data, and related risks.
The Due Diligence outcome may result in adjustments to the transaction value, transaction structure, preconditions, guarantee mechanisms, or risk allocation between the parties.
4. Negotiating and signing the deal
After the due diligence results are obtained, the parties proceed to negotiate the commercial and legal terms to translate the agreed principles into a binding transaction document.
The topics typically negotiated include:
- Enterprise value and purchase price.
- The percentage of shares or capital contributions being transferred.
- The scope of assets or operations being transferred.
- Payment methods and schedule.
- Prerequisites for completing the transaction.
- Commitments and guarantees of the buyer and seller.
- Mechanism for handling outstanding debts and obligations.
- Responsibility for risks discovered after the transaction.
For Share Deal, Common contract types include: SPA (Share Purchase Agreement). For Deal, The parties may use a contract for the sale/transfer of property or a contract appropriate to the subject matter of the transaction.
Depending on the structure and nature of the transaction, the parties may also need to finalize internal resolutions, decisions, and related legal documents.
5. Complete the transaction – Closing
Closing is the stage where the parties fulfill the agreed-upon conditions to formally complete the transaction and transfer ownership, control, or assets according to the chosen structure.
The jobs may include:
- Fulfill the prerequisites.
- Complete the necessary approval, registration, or notification procedures.
- Payment will be made as agreed.
- Transfer of shares, capital contributions, or assets.
- Complete any changes to ownership, membership, shareholders, or registration information as they arise.
- Transfer of files, assets, control, and related information.
Not all transactions have the same closing conditions. Specific requirements depend on the transaction structure, target business, industry, and applicable legal regulations.
Documents and records commonly used in M&A transactions
Depending on the specific transaction, the parties involved may use various types of documents at different stages.
- NDA: Confidentiality agreement.
- Term Sheet or Letter of Intent: Note the main principles or terms of the transaction.
- Due Diligence Profile: Documents and reports provided for assessment.
- SPA: A contract for the sale or purchase of shares or equity stakes.
- Property Sale/Transfer Contract: This applies to transactions involving the purchase of assets.
- Internal resolutions and decisions: Approve transactions within your authority.
- Application, notification, or approval request documents: Depending on the structure and legal requirements of the transaction.
- Closing Document: Documents used for payment processing, transfer, and transaction completion confirmation.
The required documentation is not fixed for every transaction; it needs to be determined according to the type of transaction and specific legal conditions.
Issues that need to be controlled during the M&A process.
An M&A deal can be risky if the parties focus solely on the purchase price without fully evaluating the target company and the conditions necessary to complete the transaction.
- Business valuation and the basis for determining the purchase price.
- Outstanding debts and contingent financial obligations.
- Unknown tax risks and liabilities.
- Disputes, contracts, and legal obligations.
- Property rights and intellectual property.
- Market access conditions for foreign investors.
- Centralized economic control.
- The obligation to disclose information applies to entities within the scope of securities law.
- Prerequisites and Closing Time.
- Post-transaction transfer and integration plan.
Conditions related to investment, competition, conditional business sectors, and enterprises in specialized fields need to be reviewed separately before the transaction is completed.
Timeframe for completing an M&A transaction
There is no fixed timeframe for all M&A transactions. The timeframe depends on the size of the deal, the transaction structure, the complexity of the target company, the scope of due diligence, and the procedures to be followed.
Transactions with simple structures can be completed faster, while transactions involving multiple assets, multiple parties, foreign investors, or those involving investment procedures, competition, and specialization may require more time.
NDA → Preliminary Exchange / LOI → Due Diligence → Negotiation → Contract Signing → Prerequisites → Closing
Businesses should build transaction timeline Right from the start, clearly define the key milestones of the deal.
After completing the M&A transaction
Closing is not always the complete end of a transaction. Depending on the contract terms and transaction objectives, the parties may continue to fulfill their obligations after closing.
- Transfer of management and control.
- Integrate systems and processes.
- Reorganize the structure and personnel.
- Fulfill the commitments following Closing.
- Monitor payment obligations and price adjustments.
- Complete the remaining procedures and handle any arising issues.
The post-M&A phase plays a crucial role in transforming the transaction's objectives into actual business results.
Summary of the M&A process
Define objectives → Search & evaluate partners → Due Diligence → Negotiation & signing → Prerequisites → Closing → Delivery & integration
Each M&A transaction has a different structure and level of complexity. Businesses need to adjust the scope of due diligence, transaction documentation, and execution sequence according to their specific objectives, target, transaction structure, and legal requirements.
