The Stages of an M&A Deal

M&A deals aim at the merger 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 remain in place. Although these stages aren't mandatory, they provide legal and financial certainty and help avoid awkward situations.

1. Preparation stage

Seller

At this stage, the seller decides to sell and what exactly will be sold. This could be all of the company's shares, part of them, or only specific assets.

Once the decision is made, the blind profile, or teaser, is prepared. This should be the first communication to the market, with the aim of finding interested parties. It's a short document that shares such limited information about the intention to sell that the company can't be located or identified.

Anonymity is an advantage and prevents news of the planned sale from causing commercial harm. For the most interested parties, the information memorandum should also be ready.

Buyer

At this stage, the buyer considers the options for a merger or an acquisition. It's common to have a team in place to analyze the legal and financial situation and determine 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, covering price and terms and, above all, certain confidentiality clauses.

2. Audit or due diligence stage

This is the stage in which the buyer and its team put the company through a thorough review 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 deal's opportunities.

3. Negotiation and signing stage

At this point, the parties choose an SPA (Stock Purchase Agreement) or an APA (Asset Purchase Agreement), depending on the purpose of the transaction and the parties' interests. This is the stage in which the parties sit down to negotiate the terms and conditions of the agreement. A purchase agreement is drafted and signed with the necessary regulatory approvals. The financial and legal steps needed to close the deal properly are also set out in detail.

Signing the agreement for the sale of a business is also known as signing. It usually comes with the representations and warranties clauses. In them, the parties take on certain liabilities and agree on indemnities in the event of a breach. They also set out payment methods, deadlines, and amounts.

4. Execution or closing stage

The conditions set in the previous stage must be met before the agreed closing date. Quite often, the transaction requires approval from the relevant administrative authority or from certain corporate bodies. This is frequently the point at which the acquiring company formally and physically takes possession of the target company.

Complementary or ancillary agreements are often entered into alongside the purchase agreement. They must be executed before the closing date. Examples include an agreement to deposit part of the price with a third party or the transfer of specific assets.

5. Integration and post-closing measures stage

This involves bringing together all operations, people, and systems, and getting the different corporate cultures to mesh perfectly. That takes an enormous effort and management resources to keep the impact on employees as low as possible, especially on the absorbed company's side.

It's important to give this stage the attention it needs so that positive synergies kick in as soon as possible. Only then will efficiency be maximized and a solid, effective structure be 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 painless as possible for the workforce and to succeed.

There are also certain notifications to consider. One example is sending a joint press release about the deal to the sector's trade media. As a courtesy, customers and suppliers should be informed beforehand.

Nothing is left to chance, nor to the parties' goodwill, trust, or improvisation. M&A deals follow a well-defined system, and although many of their documents or stages aren't legally required, we advise against skipping any of them. In the end, because everything is properly set out in writing, awkward situations and differing interpretations are avoided.

We also invite you to find out about the 10 documents you'll need to close an M&A process.