Buy Side Process
M&A Buy Side Process
This is an introduction to M&A Buy Side Process. Material includes a synopsis from multiple sources for easy reference for educational purposes.
M&A Buy-Side Process typically involves ten steps, including Acquisition Strategy, Acquisition Criteria, Searching for Target, Acquisition Planning, Valuation and Selection, Negotiation, Due Diligence, Purchase and Sales Contract, Financing and Implementation.
Acquisition Strategy
Developing a good acquisition strategy depends on the acquirer having a clear idea of what they expect to gain from the transaction, i.e. what is their business purpose for acquiring the company (e.g. expand product line, gain access to new market, etc.).
Acquisition Criteria
Determine the key criteria for identifying potential target companies (e.g. profit margins, geographic locations, or customer base).
Searching for Target
The acquirer uses their identified search criteria to look for an evaluate their potential target companies using public data from tools like Pitchbook, Capital IQ, Bloomberg, etc. They may hire consultants to help.
Acquisition Planning
The acquirer makes contact with one or more companies that meet its search criteria and appear to offer good value, with the purpose of getting more information and to see how amenable they may be to a merger or acquisition. They may sign a confidentiality agreement memorandum (CIM) to get detailed financial and operational data on the target’s business.
Valuation & Selection
If the initial contact and conversations go well, the acquirer asks the target company to provide substantial information (financial and operational) that will enable the acquirer to further evaluate the target, both as a business on its own and as a suitable acquisition target.
Negotiation
After producing several valuation models of the target company, the acquirer should haves sufficient information to enable it to construct a reasonable offer. Once the initial offer has been presented, the two companies can negotiate terms in more detail.
Due Diligence
Due diligence is an exhaustive process that begins when the offer has been accepted; due diligence aims to confirm or correct the acquirer’s assessment of the value of the target company by conducting a detailed examination and analysis of every aspect of the target company’s operations – its financial metrics, assets and liabilities, customers, human resources, etc.
Sale and Purchase Agreement
Assuming due diligence is completed with no major problems or concerns arising, the next step forward is executing a final contract for sale; the parties make a final decision on the type of purchase agreement, whether it is to be an asset purchase or share purchase.
Financing
The acquirer will, of course, have explored financing options for the deal earlier, but the details of financing typically come together after the purchase and sale agreement has been signed.
Implementation
The acquisition deal closes, and management teams of the target and acquirer work together on the process of merging the two firms.
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