wonât be successful. Simple as that. Inadvertently (and incorrectly) broadcasting yourself as an M&A amateur can be hazardous to the health of your deal.
Follow the steps to getting a deal done
Remember that the M&A process is a serial process â transactions follow a step-by-step process. The following list gives you an overview of that process; I strongly encourage you to check out Chapter 3, where I discuss the steps in more detail.
Even though M&A follows a step-by-step process, the process often isnât linear. It goes through unforeseen twists and turns, so you have to be able to adjust.
1. Compile a target list.
For Sellers, this means creating a list of potential Buyers, and for Buyers, this means a list of business owners who may be potential Sellers.
2. Make contact with the targets.
Reach out to an executive or owner of a company on your list from Step 1. I prefer to make phone calls when contacting Buyers and Sellers.
3. Send a âblind teaserâ if youâre selling or ask for an executive summary if youâre buying.
If both sides (Buyer and Seller) have some level of interest in exploring a deal after the initial contact, Seller provides Buyer with a little bit of info in the form of an anonymous teaser. That way, Buyer isnât inundated with too much info, and Seller maintains confidentiality and anonymity.
4. Sign a confidentiality agreement.
In this legal document, Buyer promises not to disclose Sellerâs private information or even the fact that conversations about a potential transaction are ongoing.
5. Send an offering document if youâre selling, or review the offering document if youâre buying.
The offering document is the deal book, the document that contains the information about the company for sale. A well-written offering document should contain enough information for Buyer to make an offer.
6. Ask for an indication of interest if youâre selling or submit one if youâre buying.
Buyer submits a simple letter expressing his interest in doing a deal. If the indication meets Sellerâs approval, she invites Buyer to a meeting.
7. Conduct management meetings.
Management meetings give Buyer and Seller an opportunity to meet face to face. Seller provides Buyer with updated figures from when the offering document was written, and based on this update, Buyer may or may not submit a formal offer.
8. Ask for a letter of intent (LOI) if youâre selling or submit one if youâre buying.
The LOI is the formal offer. However, itâs still nonbinding, so each party can still walk away from the deal at this stage.
9. Participate in due diligence.
Due diligence occurs after Buyer and Seller come to terms. During this step, Buyer reviews, examines, and inspects Sellerâs books, records, contracts, and more to verify that all the Sellerâs claims are accurate.
10. Craft a purchase agreement.
During due diligence, Buyer and Seller write a purchase agreement to finalize the deal both sides negotiated. This document is final and legally binding.
11. Attend closing.
After due diligence is complete and the purchase agreement is drafted, Buyer and Seller close the deal. Seller turns over the keys of the business to Buyer; Buyer forks over money to Seller.
12. Deal with post-closing adjustments and integration.
A deal is not done the day it closes! In most cases, Buyer and Seller have some post-closing adjustments to navigate, and Buyer has the task of integrating the two companies.
Understand M&A etiquette
If you arenât careful, you can easily give off the wrong signal inadvertently during your M&A proceedings. Failure to follow up quickly, return calls, and give complete answers is an easy way to turn off the other side and kill a deal. Show interest in doing a deal. If youâre not interested in pursuing a deal, communicate that to the other side. Here are a few more quick pointers to help you make the best