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ODER OF OPERATIONS
The same caveats apply to buyers as to sellers concerning the "normal" sequence of an M&A deal: There is no one-size-fits-all process. For starters, each deal is unique. And M&A deals are notoriously complicated and often drawn out. The play of numerous variables can affect the pace of the process and even the order of operations within it. For example, if you find a problem with the seller during due diligence, you might have to hit the pause button for a month or more to allow the seller to work it out (assuming the problem is not a deal killer, of course). So applying a rigid structure of expectations is liable to lead to frustration.
But still, most M&A deals do unfold along similar lines. A buyer would be foolish to start searching out a company to acquire before he knows what his criteria are, for example. Roughly, the buying process is as follows:
Assess your motivation for buying a company. Anyone considering the purchase of another company should have clear reasons, and this will determine the game plan. If, for example, you're looking to snatch up a particular company before one of your competitors does, you will proceed differently than if you're looking to gradually diversify your product lines.
Define screening criteria. These criteria will be crucial in guiding your search for suitable acquisition targets, so formulate them carefully. If the search drags on longer than you'd anticipated -- as it often does -- it's important you hold fast to your conditions rather than yielding to "flexibility" and settling for an imperfect buy.
Look for deals based on your criteria. This phase might be brief or prolonged, depending on a panoply of factors, many beyond your control. Many purchasers engage the services of a broker or other professionals to assist them. In other words, the following step often precedes this one.
Hire advisers. Some buyers wait until they've found a suitable acquisition target, but I recommend you gather yours earlier.
Start preliminary negotiations (see chapter 4). This is when you start to get to know the seller and his company and establish a mutual relationship. Since most M&As involve extensive contact between the two sides after the deal is closed, you want to be sure you, the seller, and your respective companies are compatible. Once you're sure of your interest in a given company, you will sign a letter of intent (LOI). (See chapter 1 for a full discussion of this document.) Negotiations will continue until the merger agreement is signed (see chapter 7).
Value the company (see chapter 10). Before you make an offer, you want to calculate what a reasonable price is. Not every buyer will treat this as a separate step, though; in some cases, due diligence will affect your offer amount.
Conduct due diligence (see chapter 6). It is impossible to overemphasize the importance of this process. Performing due diligence is a make-or-break matter; the majority of bad deals -- that is, where the buyer got burned -- could have been averted if due diligence had been more thorough or careful.
Integrate the acquired company (see chapter 8). Make sure to allocate substantial time, personnel, and material resources to this critical stage. Integrating an acquired company and its employees into your business is a sensitive, tricky business, and I've seen many buyers damage their prospects by focusing too little on this part of the M&A process.
