A 10 step process

A typical business combination process can be a complex undertaking involving multiple steps to ensure successful integration and value creation. Here is an overview of the process:

1. Develop a combination strategy

The lead firm must have a clear idea of its objectives for the combination, such as expanding product lines or entering new markets.

2. Define target search criteria

Determine key criteria for identifying potential target companies, such as profit margins, geographic location, or customer base.

3. Search for potential acquisition targets

The acquirer evaluates potential target companies based on the identified search criteria.

4. Begin merger planning

The lead firm contacts potential targets to gather more information and assess their suitability for a combination.

5. Conduct a diagnostic and assessment

The lead firm requests detailed information from the target company to evaluate its standalone value and its potential value as a combined entity.

6. Negotiations

With valuation models in hand, the lead firm presents an initial offer and negotiates the terms with the target company.

7. Due diligence audit

After offer acceptance, a thorough due diligence process is conducted to confirm or adjust the acquirer’s assessment of the target’s value.

8. Purchase and sale agreement

Assuming the due diligence is completed without any major issues or concerns, the next step is to execute a final sales agreement; the parties make a final decision on the type of purchase agreement, whether it is an asset purchase or a stock purchase.

9. Acquisition financing strategy

While financing options are explored early on, the details of the financing strategy are typically finalized after signing the final agreement.

10. Closing and integration of the acquisition

With the agreement and financing in place, the management teams of both companies collaborate on the integration process to ensure a smooth transition and the realization of the combination’s strategic objectives.
Due diligence is a comprehensive process that begins once the offer has been accepted; due diligence aims to confirm or correct the sponsor’s assessment of the target company’s value by conducting a detailed review and analysis of all aspects of the target company’s operations – its financial metrics, assets and liabilities, customers, human resources, etc.