According to the Office for National Statistics, the value of domestic M&A in Q4 2024 was £8.6 billion – an increase of £6.7 billion compared to Q3 2024 (£1.9 billion).
Mergers and acquisitions involve many complex processes and can take from 6 months to several years to finalise the deal. Delve into this long form to gain an extensive understanding of the M&A process, timelines associated with each, reasons for delays and the implications of its delays on the business.
M&A process timeline
The processes involved in M&A deals are exhaustive and require meticulous research. Each process tends to involve different methods depending on factors such as transaction size, number of employees and compliance implications. Read on for more details on M&A timelines.
1. M&A strategy development
The first step of the M&A process is strategy development which includes defining the goals of a merger or acquisition. These goals are decided by addressing crucial elements such as identifying the desired outcome, important stakeholders to be involved, and gauging industry dynamics. Objectives typically include reducing costs, expanding market share, combining production, and gaining competitive advantage. The process takes 6-12 months.
2. Setting up M&A search criteria
This step comprises developing a profile of the ideal target company, considering factors such as company size, financial standing, customer base, service/product offered, and culture and geographical presence. All of these elements are important because they help to narrow down potential targets and determine if the vision of the target company aligns with the buying company for a successful M&A deal. This step may take 1-3 months
3. Starting acquisition planning
After picking out potential targets, M&A acquisition planning begins, starting with contacting the target company. This means sending a Letter of Intent (LOI) containing the summary of the proposed deal. This is a crucial first step and helps you to understand the expectations of the target company. It can take a few weeks to complete this process.
4. Performing valuation research and analysis
This step involves assessing the current or expected value of the company. Popular techniques that are used to perform valuation research and analysis include the comparable method, the discounted cash flow method, and the precedent transactions method. Some of the main metrics to consider include business management, composition of financial structure, current market value and the prospect of future earnings. This process is of key importance for the following reasons:
- Prevents overpayment to the target company
- Helps in negotiations and improved deal-structuring
- Reduces strategic risks like operational inefficiencies.
- Ensures alignment with growth objectives.
On average, the process requires 3-6 months for completion.
5. Performing negotiations
After valuation and research, a deal is created and presented to the target company to begin negotiations. This is also the step wherein a target company may raise and address concerns over the deal’s terms. Post this, both parties enter a phase of negotiations which can take from 6 months to a year for completion. It is one of the key stages of the M&A as important factors such as contingencies, confidentiality, better pricing, and post-merger goals are discussed and settled.
6. Performing due diligence
A pivotal step of the M&A process which usually takes several months, due diligence ensures that potential pitfalls are checked and mitigated. It is an investigative process to ensure that the claims made by the target company are backed by detailed research and analysis. Due consists of six steps:
- Preliminary assessment
- Financial analysis
- Legal assessment
- Operational due diligence
- IT and cybersecurity assessment
- Ongoing monitoring
7. Generating purchase and sales contract
This step typically takes a few weeks to complete. Once due diligence is successfully done, the final purchase and sales contract is generated and executed. The buyer and selling company negotiate the price and other important terms and conditions such as purchase price and payment terms, closing conditions, and employee and benefit matters.
Once these discussions are settled, the sales and purchase contract is executed which also serves as a legally binding document after the signatures are completed by both companies. Depending upon the kind of transaction, purchase and sales contracts can take different forms such as stock purchase agreement, asset purchase agreement or merger agreement.
9. Deal closure
After the purchase and sales contract is generated, the deal closure process begins. This is mainly carried out by the legal team, who will obtain signatures, plan and organise final processes, and draft important closing documents. obtaining signatures, planning and organising the process and drafting the important closing documents. These steps are critical to finalising M&A transactions in which ownership is transferred from the seller to the buyer company. The main steps are:
- Fulfilling closing conditions: All agreed upon conditions of the sale and purchase agreement should be fulfilled. These can be regulatory approvals, third-party consents and clearance of pending debts.
- Executing legal documents: The buyers and seller should duly sign all important legal documents such as final indemnity agreements and employment contracts for key employees. This is also the stage where ownership documents are exchanged.
- Financial settlements: In this step, the buyer pays the agreed purchase amount to the seller and also settles outstanding debts. Here, an escrow account can be funded to mitigate possible financial risks for both parties.
- Employee and HR integration: Onboarding and retention of acquired employees, implementation of cultural integration strategy and communications about new roles, HR policies and benefits constitute this step.
- IT transition: Pivotal for the smooth functioning of the M&A, this step ensures the streamlined migration of data and IT systems and supply chain for the continuation of hassle-free business operations.
- Post-closing obligations: At this stage, important aspects of the deal are addressed to keep the involved companies on the correct side of the law. This normally includes regulatory filings such as taxes and compliance documents.
Why do M&As take so long?
There are critical factors that are important to address in the M&A process. Such factors are often time-consuming and demand intricate research and analysis. We’ve outlined more details below:
Due diligence complexities
The buying company does an in-depth inspection of the target company which involves complex processes such as deep financial analysis, seeking approvals from regulatory bodies to ensure adherence to regulatory compliances, technological and infrastructure assessment, and examining sustainable practices. It is difficult for the selling company to quickly present this data. Additionally, with multiple stakeholders such as legal teams and external consultants, there is an addition of complexities in the process which cause an overall delay in due diligence completion.
Cultural integration challenges
Cultural integration challenges such as resource diversion, leadership misalignment, and technology integration sometimes significantly slow down the alignment process between target and buying companies. This can lead to extended time and effort to achieve effective collaboration.
Negotiation disputes
Disagreements over key negotiation deals result in prolonged discussions among stakeholders and sometimes legal battles. Common reasons include different evaluations of the target company’s worth among stakeholders, culture clashes like problems over leadership roles and uncertainty over layoffs and compensation structures when hiring new employees
Market conditions
The M&A process largely depends on market conditions such as economic recessions and market volatility. The valuation of the target company at such a time becomes uncertain along with sector-specific slowdowns, rapid technological changes, commodity price volatility and changing consumer preferences. At these points credit conditions from banks become limited, and interest rates rise significantly. This means, a buyer may choose to wait f or a merger or acquisition until market conditions become stable.
What are the implications of M&A delays?
Extended timelines in the M&A processes can have significant financial, and operational consequences. A few of them are:
Financial losses
Delays in the M&A process result in financial losses including higher expenses for legal, administrative and advisory services. These delays are often caused by prolonged due diligence. Moreover, extended timelines often result in additional costs to meet evolving regulatory requirements.
Strained relationships with stakeholders
M&A deal delays can also strain relationships with various stakeholders, such as shareholders and employees, which may create challenges that negatively impact transactions. Employees feel uncertain regarding their job security and organisational changes, leading to low morale and increased turnover within an organisation. Such delays may also raise concerns among investors regarding the viability of the M&A deal, and they may perceive it as a hint to serious underlying problems.
IT integration issues
For an organisation to operate seamlessly, its various IT systems and software platforms must be effectively integrated. However, delays in M&A deals often lead to setbacks in IT integration, resulting in significant operational inefficiencies. These can include costly system overhauls, heightened risks of data breaches, and disruptions to business processes. Ultimately, such challenges can hinder operations and lead to substantial financial losses for the merged entity.
Tips and strategies for a more efficient M&A process
Now that we understand why the M&A process can be so time-consuming and the repercussions, it’s time to explore key tips and strategies to help you navigate smoothly and efficiently.
Leverage technology
Use advanced tools that monitor progress, automate tasks wherever possible and foster collaboration among teams from the company involved. For instance, using a financial management tool can automate daily tasks so that teams can focus on strategy and growth rather than spending time on repetitive tasks. Such automation streamlines workflows, provides data accuracy and generates real-time insights in the areas of budgets and spending. This improves decision-making efficiency throughout the M&A process.
Involve the right stakeholders
It is essential to involve the right stakeholders at each stage of the deal to achieve the desired outcome. Doing this will ensure that best practices such as providing clear roles and responsibilities to employees and comprehensively coordinated efforts are successfully adhere to. Stakeholders in M&A deals mainly include the following:
- Leadership team
- M&A development team
- Compliance and legal team
- Finance and accounting team
- Human Resources team
- IT and technology team
- Risk management team
- PR team
Use financial management tools
Financial integration is a key to ensuring that the combined M&A entity achieves its financial objectives smoothly. To make this happen, it is important to integrate financial systems and align accounting practices by implementing the latest financial tools. This will help achieve the following benefits:
- Streamlined financial reporting and forecasting
- Aligned accounting practices such as expense management and tax reporting to ensure financial compliance requirements
- Ability to monitor the performance of the combined entity and gauge the progress
Mergers and acquisitions are intricate, resource-intensive processes and require thorough planning, precision, and collaboration. With timelines spanning from months to years, each phase – strategy, valuation, negotiations, due diligence, and deal closure – presents distinct challenges that demand careful navigation. Delays can result in financial losses, operational inefficiencies, and strained relationships. However, leveraging advanced tools, involving the right stakeholders, and streamlining processes can significantly mitigate these challenges and accelerate the M&A timeline.
How our financial management tool can help?
OneAdvanced Financials is a tool that is designed to solve the most pressing M&A issues such as valuation disputes, regulatory compliance, due diligence, and post-merger integration. Financials mitigates these issues with the help of automated financial reporting, real-time dashboards, flexible general ledger structures, and seamless data consolidation.
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