Understanding M&A - the simple way

For most of us Mergers and Acquisitions are “jargons” that we have heard while binge watching “Suits” or a term that went above our head while watching “Wall Street.” It may look effortless and brisk on screen. On the contrary, it is a long tedious process that both the buyer and seller go through in real life. The only thing common in the real and reel M&A is drama.

To put ahead briefly what usually happens in M&A, let us look at it as 5 steps : 

Step 1: Strategic planning and Identification

As soon as you decide to buy/sell a company, you need to plan what, how, when and how much you are ready to pay/receive. There are various factors that go behind answering each of these questions. Once this is figured out, we do the match-making – finding the right seller/buyer.

Step 2: Letter of Intent

Once we have the buyer and seller up for it, we do the engagement. Both the parties agree on key terms and conditions and willingness to go ahead to the next step and sign a Letter of Intent.

Step 3: Due Diligence

This is where the buyer understands the in and out of the seller – strengths, weakness, risks and opportunities – by looking into financial, operational and legal aspects of the seller. You can call this the courtship period.

Step 4: Negotiation and Definitive Agreement

Yes, then you sign the prenup. The parties work together and draft an agreement to include purchase price, payment structure, representations & warranties and any other terms agreed between the parties.

Step 5: Closing and Integration

During this phase, the parties execute the agreement and transfer the ownership. Post this the operations, systems, cultures, and teams are integrated under a single umbrella. And that is what  you call happily ever after.