Key Steps In The M&A Process And Buying Or Selling A Business

By - February 24, 2025 - Mergers & Acquisitions

Mergers and acquisitions (M&As) can be great business opportunities, but the M&A process is often complex and challenging. Whether you’re interested in selling a business you’ve built or want to expand your portfolio, there’s a lot to know before entering into a merger or acquisition. Let’s take a closer look at the key steps in the M&A process and how you can help encourage a smooth transaction.

Preparing for the Transaction

The first step in the M&A process is preparation. Defining your goals and objectives as well as assembling a team of professionals at the start can help you achieve favorable outcomes and make the process easier.

Defining Goals and Objectives for Buyers and Sellers

It’s important to set clear goals when considering a merger or acquisition. If you’re a seller, this may include achieving a specific sale price, finding a buyer whose vision for the company aligns with your values, or making the transition of ownership go as smooth as possible. If you’re a buyer, you might set M&A goals like acquiring specific assets, scaling business operations, or entering new markets.

Assembling a Team of Professionals

Experienced professionals can provide guidance throughout the M&A process, helping you minimize risks and protect your interests. Consider assembling a team of professionals like lawyers, financial consultants, and other experts who specialize in mergers and acquisitions. Each person can help with a different aspect of the process. For example, lawyers can help you draft crucial documents and ensure you remain compliant with any laws or regulations. Financial consultants can help with business valuation and structuring the deal. M&A specialists can help you identify risks and maximize value.

Sellers may also benefit from working with a broker or investment banker, who can help market the business to attract ideal buyers. At the same time, buyers may benefit from working with consultants who can develop strategies for the desired acquisition.

Business Valuation and Target Identification

Accurately determining the value of a target company and identifying the right buyers or sellers are key to a successful M&A. When it comes to business valuation, you need to have a thorough understanding of the company’s market position, assets, and financial performance. An accurate valuation helps sellers justify their asking price by backing it up with data. At the same time, the valuation helps prevent buyers from overpaying for the target company.

There are a few different approaches to determining the value of a business, including:

• Market approach, which compares the business to similar businesses that have recently sold
• Income approach, which looks at the business’s potential to make money in the future and applies a discount rate to determine the current value
• Asset-based approach, which calculates the value of the business’s assets minus the business’s liabilities.

Target identification is also a crucial step in an M&A. For sellers, this means finding buyers who have the necessary finances to buy your company and who ideally share your vision and values. For buyers, target identification involves researching specific companies that align with your goals as well as industries and market trends. You can narrow the search by looking at certain geographic locations, market shares, and revenue thresholds.

Conducting Due Diligence

When you buy or sell a business, it’s important to conduct due diligence before the transaction is finalized. This is the process of verifying details about the target company. It often includes looking at the business’s financial, legal, and operational information.

Financial due diligence, for example, can include reviewing documents like profit and loss statements, revenue projections, balance sheets, and tax filings. This gives buyers a better understanding of the business’s profit, sustainability, and possible liabilities. If you’re putting a business up for sale, make sure your financial records are up to date and give a clear and honest portrayal of your company’s finances.

Legal due diligence focuses on the company’s compliance with laws and regulations. This knowledge can help buyers reduce their exposure to future liabilities.

Operational due diligence involves looking at the business’s processes, employee structures, vendor contracts, supply chains, customer agreements, and other operational aspects to uncover vulnerabilities or dependencies.

Before the due diligence process begins, the buyer may be required to sign a non-disclosure agreement (NDA) to help protect sensitive information about the target company.

Hidden liabilities, issues with permits, and inaccurate records can break the buyer’s trust in the seller and prevent the sale from going through. It’s crucial for sellers to provide accurate and comprehensive information about their business, and for buyers to confirm the details they’re given.

Negotiating the Deal Between the Buyer and Seller

Once due diligence is complete, it’s time to negotiate the deal. This step in the M&A process involves crafting the letter of intent and structuring the purchase agreement. It’s also the stage where buyers and sellers can finalize the terms of the deal.

This can be a time-consuming step, so patience is a must. Since both parties want a deal that serves their best interests, the negotiation stage often includes multiple rounds of offers and counteroffers.

Crafting the Letter of Intent (LOI)

As the name suggests, a letter of intent (LOI) expresses each party’s intent for the M&A deal. It’s not always a legally binding document, but rather can be a preliminary one that provides the groundwork for the transaction. The LOI includes the proposed sale price, exclusivity period, payment structure, and other desired terms. It also includes any contingencies, such as obtaining regulatory approvals or securing financing. The letter of intent protects the interests of buyers and sellers and helps ensure everyone is on the same page before the deal moves forward.

Structuring the Purchase Agreement

This agreement formalizes the M&A deal. Unlike the LOI, the agreement is legally binding. This document typically includes:

• Price and payment terms
• Representations and warranties regarding the business’s condition
• Indemnities, which ensure that one party will be compensated in the event of specific losses
• Closing conditions, which must be met before the transaction can be finalized

Working with an experienced business attorney is a great way to ensure the agreement includes all the necessary details and structured correctly. This can help prevent disputes, monetary losses, and other potential issues.

Securing Approvals and Financing

Prior to closing, sellers and buyers must meet specific requirements regarding regulatory compliance and financing. Regulatory compliance can help prevent legal complications and delays. Depending on your industry, the M&A deal may require environmental assessments, industry-specific licenses, antitrust reviews, and other regulatory approvals. Knowledgeable attorneys and regulatory authorities can help make sure that all requirements are met.

When it comes to financing, buyers must make sure they have the funds to proceed with the M&A deal. This may involve getting a loan from the bank, receiving an investment from a private equity firm, or getting a loan from the seller. If you’ll need financing, it can be helpful to talk with lenders or investors early on so you know what you can afford.

Closing and Transitioning Your Company

The final step of the M&A process is closing the deal and transitioning the business to the new owner. During closing, buyers and sellers sign the final contracts, such as the purchase agreement, bill of sale, and regulatory filings. Ownership is transferred to the buyer and payments are made according to the agreed-upon payment schedule. All legal and monetary obligations must be met before the M&A deal is considered finalized.

During this step of the M&A, buyers should be focused on obtaining key business assets and keeping the business running smoothly. Sellers should consider how to best transition relationships with clients, vendors, and employees.

Post-Transaction Integration

The integration stage of a merger or acquisition can be challenging for buyers. It involves aligning management teams and leadership strategies as well as tracking progress and adjusting as needed. Additionally, business integration typically includes:

• Retaining key employees: Employee retention and morale are crucial, so be sure to address any concerns the employees might have.
• Communicating changes: Keep customers and stakeholders informed about the changes to encourage trust and minimize disruption.
• Aligning with the parent company: The acquired company will have to adapt to the parent company’s operations, processes, and culture. In a merger, both companies may have to make adjustments.

While a successful integration benefits buyers, it also helps sellers by protecting the business’s legacy and supporting continued operation. Sellers might want to consider consulting the buyer during the transition and facilitate introductions to key stakeholders.

Work With an Experienced Attorney

Whether you’re purchasing a business or trying to sell one, the M&A process can be complex. Following the steps in this blog post can help you prepare for and execute a successful merger or acquisition. For additional guidance and support, contact the Stevens Law Firm. We have years of experience working with companies of all sizes and can assist with every step of the M&A, including due diligence, drafting agreement documents, and more. Contact us today to learn more and get a free consultation.