M&A deals involve the merger with and/or acquisition of a company or part of its assets by a financial investor (private equity, venture capital, direct lending, family office) or a strategic buyer, and they usually consist of five stages.
The result may be a new entity in which the buyer absorbs the seller, or both legal entities may continue to exist. Although these stages aren't mandatory, they provide legal and financial certainty and prevent awkward situations.
1. Preparation stage
Seller
At this stage, the seller decides to sell and determines what will be sold. This may be all of the company's shares, a portion of them, or only certain specific assets.
Once the decision has been made, the blind profile, or teaser, is prepared. This should be the first communication to the outside world aimed at finding interested parties. It's a short document that provides such limited information about the intention to sell that the company can't be located or identified.
Anonymity helps and prevents news of the plans to sell from causing commercial harm. For the most interested parties, the information memorandum should also be ready.
Buyer
At this stage, the buyer considers the possibilities of a merger or an acquisition. Typically, they have a team in place to analyze the legal and financial situation and which search criteria are most appropriate.
This stage ends with both parties signing the letter of intent (LOI). It's a binding document that sets out the first ground rules, discusses price and terms and, above all, certain confidentiality clauses.
2. Audit or due diligence stage
This is the stage in which the buyer and their team subject the company to a thorough examination to uncover hidden risks. This covers its financial statements, assets and liabilities, market position, and reputation. It's best to have expert staff for this.
It's also important to carry out a legal review to identify potential legal and regulatory obstacles. This stage is therefore vital for making informed decisions and understanding the opportunities of the deal.
3. Negotiation and signing stage
At this point, the parties opt for an SPA (share purchase agreement) or an APA (asset purchase agreement), depending on the subject of the transaction and the parties' interests. This is the stage in which the interested parties sit down to negotiate the terms and conditions of the agreement. A purchase agreement is drawn up and signed, with the necessary regulatory approvals. The financial and legal steps required to close the deal properly are also set out in detail.
Signing the agreement for the sale of a business is also called signing. It's usually accompanied by the representations and warranties document. In it, the parties assume certain liabilities and indemnities in the event of a breach. It also sets out the payment methods, timelines, and amounts.
4. Execution stage, or closing
The conditions established in the previous stage must be met before the date agreed for closing the deal. Quite often, the transaction requires approval from the relevant administrative authority or from certain corporate bodies. This is often the moment when the acquiring company formally and physically takes possession of the target company.
In many cases, ancillary or side agreements are entered into alongside the purchase agreement. These must be executed before the closing date. Examples include the agreement to deposit part of the price with a third party (escrow) or the transfer of specific assets.
5. Integration and post-closing stage
This involves combining all operations, human resources, and systems, and meshing the different corporate cultures seamlessly, which requires an enormous effort and management resources to minimize the impact on employees, especially those of the absorbed company.
It's important to give it the attention it needs so that positive synergies kick in as soon as possible. Only then is efficiency maximized and a solid, effective structure created. The best way to achieve this is to draw up integration plans with the various teams and assign clear, detailed responsibilities. The goal is for this process to be as smooth as possible for the workforce and to succeed.
There are also certain notifications to consider. For example, one of them is sending a joint press release about the deal to specialized industry media. Before that, as a courtesy, customers and suppliers should be informed.
Nothing is left to chance, nor to the goodwill of the parties, trust, or improvisation. M&A deals are fully systematized and, although legally many of their documents or stages aren't mandatory, we advise not skipping any of them. In the end, because everything is properly set out in writing, awkward situations and differences in interpretation are avoided.
We also invite you to find out which 10 documents you'll need to close an M&A process.
