Process of M&A

Steps of Mergers and Acquisition Process

The process of merger and acquisition has the following steps:

Market VaIuation

Before you go for any merger and acquisition, it is of utmost important that you must know the present market value
of the organization as well as its estimated future financial performance. The information about organization, its
history, products/services, facilities and ownerships are reviewed. Sales organization and marketing approaches are
also taken into consideration.

Exit PIanning

The decision to sell business largely depends upon the future plan of the organization what does it target to achieve
and how is it going to handle the wealth etc. Various issues like estate planning, continuing business involvement,
debt resolution etc. as well as tax issues and business issues are considered before making exit planning. The
structure of the deal largely depends upon the available options. The form of compensation (such as cash, secured
notes, stock, convertible bonds, royalties, future earnings share, consulting agreements, or buy back opportunities
etc.) also plays a major role here in determining the exit planning.

Structured Marketing Process

This is merger and acquisition process involves marketing of the business entity. While doing the marketing, selling
price is never divulged to the potential buyers. Serious buyers are also identified and then encouraged during the
process. Following are the features of this phase.
O Seller agrees on the disseminated materials in advance. Buyer also needs to sign a Non-Disclosure
agreement.
O Seller also presents Memorandum and Profiles, which factually showcases the business.
O Database of prospective buyers are searched.
O Assessment and screening of buyers are done.
O Special focuses are given on he personal needs of the seller during structuring of deals.
O Final letter of intent is developed after a phase of negotiation.
etter of Intent

Both, buyer and seller take the letter of intent to their respective attorneys to find out whether there is any scope of
further negotiation left or not. ssues like price and terms, deciding on due diligence period, deal structure, purchase
price adjustments, earn out provisions liability obligations, SRA and ERSA issues, Non-solicitation agreement,
Breakup fees and no shop provisions, pre closing tax liabilities, product liability issues, post closing insurance
policies, representations and warranties, and indemnification issues etc. are negotiated in the Letter of ntent. After
reviewing, a Definitive Purchase Agreement is prepared.

uyer Due DiIigence

This is the phase in the merger and acquisition process where seller makes its business process open for the buyer,
so that it can make an in-depth investigation on the business as well as its attorneys, bankers, accountants, tad
advisors etc.

Definitive Purchase Agreement

Finally Definitive Purchase Agreement are made, which states the transaction details including regulatory approvals,
financing sources and other conditions of sale.

DeveIop acquisition objectives



AnaIyze projected economic and financiaI gains to be achieved by the
acquisition

AssembIe an acquisition team (typically managers, attorneys,
accountants, a business appraiser and investment bankers)

Conduct the search for acquisition candidates
Here are a few items to consider as you start refining your initial
filtering criteria:
The maximum and minimum revenue range
Geographic location
Years in business
Market share
Reputation (either good or poor)
Distribution channels
Technology provided
Corporate culture
Specific business strengths, such as R&D, sales/marketing, or production
Low-cost as opposed to high-price provider
Services or products provider
ndustry
Publicly traded or privately held
Reputation of the management team
This list can continue to a high level of detail, which will help in refining the search. Don't be
surprised if a very detailed list reveals no companies at all;
at this time, you start dropping "nice-to-have items from the list and search
based on "must-have items. Don't be fooled into thinking that a highly refined
list will find exactly the right target. Much of the successful M&A process
is derived from the interaction of management, owners, shareholders,
and financial backers, all of which cannot be effectively quantified. All you
are trying to do at this point is distill down the list of possible companies to a
short list of the (roughly 10 or so) companies on which a more detailed investigation
can be performed.

Perform due-diIigence anaIysis of prime candidates


Conduct initiaI negotiations and valuation of the selected target
Once the due diligence stage is finished, the lawyers begin negotiating the
specific terms and conditions of the deal. As a business manager, it is important
that you walk that fine line between overcontrolling the negotiations and
making sure that the overall business intentions are met. The detailed legal
discussions are usually best left to the lawyers who negotiate these types of
transactions on a regular basis.
Remember that lawyers are great at creating a legally binding agreement,
but they are not always great at making sure that the agreement makes business
sense. That is where the management team plays a critical role. Signing
a legally binding agreement that makes little business sense is obviously
counterproductive. Signing a solid business agreement that is not legally
binding on the parties involved is nothing but a future breeding ground for
discord and litigation. See Chapter 21, "Legal Considerations, for additional
information regarding the legal aspects of M&A transactions.

SeIect the structure of the Transaction

Identify sources of financing for the Transaction
As the due diligence stage comes to an end, the buyer and seller should be
closing in on a specific price for the acquisition, including associated stipulations.
The capacity to fund the purchase is required of the buyer, and the
seller is well advised to ensure that the buyer can come up with the requiredgy M&A Guidebook
financing. Just as a house buyer is prequalified for the required financing, so
should a business buyer be prequalified. This financing will depend heavily
on the financial condition of the acquired company, but the end result is the
same. The buying and/or selling company must be creditworthy or the deal
will simply not go through.
Buyers have usually lined up financing when the letter of intent is signed,
and sellers are completely in line to ask early on about the buyer's ability to
fund the purchase. A meeting to discuss methods of financing is warranted
earlier in the process once a general price range is established to ensure that
both parties are not wasting time. Sellers may seriously consider stalling the
due diligence stage until the buyer has shown itself to be creditworthy. Chapter
6, "Deal Types and Their Funding, presents a number of different acquisition
purchase funding methods.

Conduct detaiIed bidding and negotiations

Obtain aII sharehoIder and third party consents and approvals

Structure the IegaI documents

Prepare for the cIosing

CIose the deaI

Perform post-cIosing tasks and responsibilities

ImpIement the strategic integration of your company and the acquired
company



Phase I- Strategic planning
a. Corporate IeveI
b. usiness unit IeveI
O DeveIop acquisition objectives
O AnaIyze projected economic and financiaI gains to be achieved
by the acquisition
O AssembIe an acquisition team (typically managers, attorneys,
accountants, a business appraiser and investment bankers)

Phase II- target identification and screening
O Identify Candidates
O InitiaI Screening (size, profitabiIity, technoIogy, customer, dist
channeI, corporate cuIture)
O #ecommend shortIist
O Perform due-diIigence anaIysis of prime candidates
a. Management & Organization Information
b. FinanciaI Information (CapabiIities)
c. Purpose of Merger or Acquisition

Phase III- transaction structuring
O etter of intent/ ConfidentiaIity agreements
O EvaIuation of deaI points
a. Continuity of Management
b. Real Estate ssues
c. Non-Business Related Assets
d. Consideration Method
e. Cash Compensation
f. Stock Consideration
g. Tax ssues
h. Contingent Payments
i. Legal Structure
j. Financing the Transaction
O Memorandum (time tabIe, ruIes of engagement, bid procedure)
O FinanciaI resuIts and projections
O VaIuation

Phase IV- Due DiIigence
a. egaI Due DiIigence
b. SeIIer Due DiIigence
c. FinanciaI AnaIysis
d. Projecting #esuIts of the Structure

Phase V- deaI execution
O ApprovaI
O Signing
O #eguIatory approvaI
O CIosing

Phase VI- integration
O Post merger integration