by Chris SwiecickiHow Long Does the Average M&A Deal Take?
Mergers and Acquisitions (M&A) are complex business transactions that can significantly impact companies, industries, and even whole economies. They involve the combination of two or more companies, either through a merger (the coming together of equals) or an acquisition (one company purchasing another).
Business owners, even though they are aware of the complexity of such deals, are often still surprised at how long the M&A process takes. So how long does the average M&A deal take? While the average timeline is between six and twelve months, various factors influence the timeline of M&A transactions, so the average might not be as informative as knowing what the milestones are, and what to expect along the way.
What Can Affect M&A Timelines?
On average, Mergers and Acquisitions deals typically take several months to complete, ranging from six to twelve months or longer. Smaller transactions involving private companies may close more quickly, while larger deals with significant complexities and hurdles can take several years. Timelines depend on several factors:
Deal Complexity: Complex deals with numerous subsidiaries, international operations, or regulatory challenges tend to take longer to complete.
Due Diligence: The depth and breadth of due diligence (a process that allows the buyer to confirm pertinent information about the seller, such as contracts, finances, and customers) can significantly impact the timeline. Investigations into financials, legal matters, operations, and culture may turn into an extensive process.
Negotiations: The negotiation phase, including price, terms, and conditions, can vary in length. Contentious negotiations may extend the timeline.
Financing: Securing financing, whether through equity, debt, or a combination, can be a lengthy process that impacts deal closure.
Integration Planning: Planning the integration of two companies requires careful consideration of various factors, and this phase may begin before the deal closes. Extensive integration planning can add time to the process.
Cultural Alignment: Achieving alignment between the cultures of merging companies can be a time-consuming effort. Cultural differences may require additional attention and resources.
Unforeseen Challenges: Unexpected obstacles, such as legal disputes, unexpected financial issues, or changes in market conditions, can prolong the deal timeline.
Image by utah778 by Canva.com
Steps in the M&A Process
The typical M&A deal flow consists of strategy, transaction, and implementation phases. Here is a more thorough breakdown of these phases:
Strategy Development/Planning
Define the strategic objectives and rationale for the deal. Essentially, the merger process commences when a company opts to acquire another. A company assesses the advantages of merging with another entity and identifies the potential benefits it stands to gain from the acquisition. This evaluation necessitates a thorough examination of its own operations as well.
Due Diligence
Upon acceptance of the offer, the due diligence phase begins. This comprehensive examination encompasses all financial facets, including balance sheets, ratios, personnel, clientele, supply chains, market presence, operational protocols, and beyond. This in-depth assessment of the target company is used to identify any prospective issues associated with the business.
Negotiation/Merger Agreement
Finalize the terms and conditions of the deal. After an acquiring company identifies its merger need, conducts searches for suitable target firms, selects a compatible candidate, and assesses its value, the formal merger process commences when one company extends an offer to another. Typically, this initiates confidential deliberations between both parties regarding the proposed merger. While initial agreements may arise from the first offer, negotiations typically entail multiple offers and prolonged discussions, often spanning several months.
Closing
Sign the final agreements and complete the transaction. If the buyer remains interested in pursuing the acquisition, both parties typically outline the specifics of their transaction, including all terms and conditions. This may include discussions regarding the final purchase price, as well as the particulars of warranties, indemnities, and any restrictions. These negotiated terms are then incorporated into either a Share Purchase Agreement (SPA) or an Assets Purchase Agreement (APA), depending on whether the transaction involves the acquisition of shares or the entire business.
Integration
Execute the integration plan to merge the two companies successfully. It is common for the Share Purchase Agreement (SPA) or Assets Purchase Agreement (APA) to incorporate clauses that become operative after the closing, including additional responsibilities to be fulfilled by both parties. These may include finalizing the transfer of extra assets, securing consents, or entering into supplementary contracts.
In addition to addressing these post-closing affairs, the parties may also consider a post-closing integration process. This exercise aims to merge the two companies or businesses successfully.
Ensure a Successful M&A Deal
The duration of an M&A deal can vary widely, depending on numerous factors. While the average timeline falls within the range of six to twelve months, it’s crucial to recognize that each transaction is unique. Successful M&A deals require careful planning, diligence, and a willingness to adapt to unforeseen challenges. Understanding the potential variables that can affect the timeline can be complicated. Contact Swiecicki & Muskett to help you navigate the complexities of M&A transactions with greater clarity and confidence.
Cover Image by Natee Meepian’s Images by Canva.com
by Chris SwiecickiWhat is the Difference Between a Merger, an Amalgamation, an Acquisition, and a Takeover?
As a small business owner, one of your long term goals could be to sell your business, or acquire another one to expand your reach. Either way, it’s a big decision, and understanding the different ways companies can combine with each other will give you more options and a greater understanding of the potential outcomes.
There are four main types of business combinations: Mergers, amalgamations, acquisitions, and takeovers. Each one serves a different strategic outcome, and only you can decide which one is ultimately the best match for your goals.
Mergers
A merger is a strategic move where two or more companies combine resources and operations to create a new entity. A merger is usually a mutually agreed-upon decision to expand market reach, diversify product lines, or enhance operational efficiency.
Mergers represent strategic decisions businesses make for a variety of reasons. At their core, mergers are about growth and consolidation. They provide an opportunity for companies to expand their market reach, gain competitive advantages, and increase their market share. Unifying resources, talent, and operations between the merging entities achieves this.
One of the key reasons why a company might opt for a merger is to expand into new geographical areas. Suppose a company is seeking to grow its business in a specific region. In that case, it may merge with another company already operating in that area. This allows the merging company to leverage the local market knowledge, presence, and customer base of the existing company, thus facilitating a smoother and more effective expansion. Another significant motivation for pursuing a merger could be preventing an unprofitable business’s closure. If a company struggles financially, merging with a healthier company could infuse it with the necessary resources and stability to turn its fortunes around. This saves the company from potential bankruptcy and helps preserve jobs that might otherwise be lost. Additionally, mergers can lead to cost efficiencies through economies of scale. By consolidating operations, companies can eliminate duplicate departments or functions, saving costs. This could result in lower customer prices and increased profitability for the newly merged company.
A merger or acquisition is a complex legal process. It starts with evaluating the economic value of the deal, followed by meeting statutory requirements, drafting legal documentation, and conducting due diligence. After the merger, the focus shifts to effective integration management. A merger and acquisition attorney is critical to the process, offering high-quality advice, risk mitigation, and negotiation skills.
Amalgamations
An amalgamation is similar to a merger but usually involves more than two companies. In an amalgamation, multiple companies combine to form an entirely new company. The existing companies cease to exist, and the new entity takes over their assets and liabilities. This strategy is often adopted to achieve more significant economies of scale or to consolidate resources. None of the combining companies survive as independent legal entities in an amalgamation. Instead, they dissolve and form an entirely new company.
Amalgamations can streamline operations, reduce overhead costs, and improve financial performance. For instance, the combined entity can eliminate duplicate departments or functions, resulting in operational efficiencies and cost savings. From a legal perspective, an amalgamation involves due diligence to inspect all aspects of the target companies, from operations to intellectual property.
The process also requires compliance with statutory requirements, which vary depending on the size and sector of the firms. The amalgamation is formalized through a legal contract, and a critical phase post-amalgamation is managing the integration of the companies.
Image by photobyphotoboy by Canva.com
Acquisitions
In an acquisition, one company (the acquirer) purchases another company (the acquiree). The acquirer takes control of the acquired company, which becomes part of the acquirer’s business, and the acquiree’s identity ceases to exist. This strategy stimulates growth, gains competitive advantages, or increases market share, giving the acquirer a greater presence and influence in its industry. There are several compelling reasons why a business might want to pursue an acquisition. One key motivation is to improve the performance of the target company. The acquirer may identify opportunities to significantly reduce costs, improve margins, and enhance cash flows within the target company.
As mentioned, an acquisition is when one company buys most, if not all, of another company’s ownership stakes to take control. From a legal perspective, this involves a series of steps. A thorough analysis of the economic value of the deal is undertaken. If the value is positive, the buyer proceeds to meet any statutory requirements that may apply, depending on the size and sector of the company being acquired. The acquisition also necessitates conducting financial and legal due diligence to reveal relevant information for the buyer. This process involves the seller providing all supporting documents and answering a due diligence questionnaire. The transaction is formalized through legal documents, often a sale and purchase agreement.
Takeovers
A takeover is a type of acquisition that can be friendly or hostile. In a friendly takeover, the target company’s management supports the transaction. However, in a hostile takeover, the acquiring company pursues the purchase despite opposition from the target company’s management or board of directors.
A takeover occurs when an acquiring company aims to assume control of a target company, typically by purchasing a majority stake. The process often involves making a bid for the target company’s shares. If the takeover is successful, the acquiring company gains control over the target company and its resources, which can significantly impact its market position. There are several strategic reasons why a business might want to pursue a takeover. For instance, if a company’s existing products are in the later stages of their life cycles, it may be challenging to achieve organic growth. In such cases, a takeover allows for the acquisition of new products or services and the expansion of the business portfolio. A takeover is a legal process in which one company acquires control of another by purchasing most of its stock. From a legal standpoint, this involves careful due diligence, which is a thorough investigation of all aspects of the target company.
It’s also crucial to comply with any statutory requirements related to the specific industry or size of the firms involved. The takeover is formalized via legal documents, often a sale and purchase agreement, if a single entity owns the target.
Differences Among These Business Combinations
While all these terms represent ways of combining businesses, their processes, strategies, and outcomes differ. In mergers and amalgamations, the companies involved typically have a mutual agreement and shared objectives. The resultant company is a blend of merging entities, which often cease to exist in their original form.
By contrast, in acquisitions and takeovers, the identity of the acquiring company usually remains while the acquired company gets absorbed. The key difference between an acquisition and a takeover is the level of agreement from the target company, with takeovers potentially being done against the wishes of the target’s leadership. Each business combination has its own legal, financial, and operational implications. Ultimately, the best route to take would depend on the specific circumstances of the business and the owner’s strategic objectives. It would be advisable for a business owner to consult with a financial advisor or business consultant to understand the best options for their specific situation.
As a business law firm, we’re here to guide you through these complex processes and help ensure your business transition is as smooth and advantageous as possible. Contact us to discuss your options and embark on this pivotal business journey with confidence.