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By Jenkins Fenstermaker, PLLC on 10/22/2020
Critical Steps for a Successful M&A Plan

In any market and industry, businesses sometimes find the best way forward—or out—is through mergers and acquisitions (M&A). A successful M&A transaction, one seen through to completion, is not a matter of luck or circumstance. A detailed and thoughtfully carried out M&A plan is essential to successfully completing an M&A transaction or avoiding one that, in the end, would not be in your business’s best interest. Because of the legal ramifications at various points in the process, an attorney with experience helping clients through the stages of mergers and acquisitions is an invaluable resource for businesses considering this path forward.

How a Comprehensive M&A Plan Helps

Businesses may engage in mergers and acquisitions to buy a competitor in product or market area, to economize by absorbing a supplier, or to grow market share. Whatever the reason behind the merger or acquisition, such deals are the result of months—sometimes years—of careful research and planning. The outline for this process is the M&A plan.

The early steps of M&A plans involve significant research and strategizing, and they may initially occur without a target business or counterpart to the transaction in mind. The middle and later steps include the collection and exchange of financial data, negotiation of transaction terms, and then collection and exchange of more detailed financial and company data. The acquiring company then finalizes the financing for the transaction, and the parties execute M&A agreements and closing documents to conclude the deal.

For acquiring companies, M&A plans should also contemplate how the newly merged companies will blend. This would include anticipating redundancies in post-merger business processes and staffing and, significantly, identifying how to create a common culture for success moving forward.

Each step in an M&A plan is essential for a successful outcome, whether or not that means the completion of the deal. Each step also requires assistance from professionals outside of the business to ensure a comprehensive M&A plan and success at its completion.

Steps to Include in Your M&A Plan

Executing a comprehensive M&A plan is an enormous undertaking that requires assistance from external professional resources. You must critically consider the financial health and industry trends affecting at least two businesses. Government regulation, contract negotiation, and evaluation of each business’s legal obligations (from existing contracts or otherwise) can greatly impact the value and prospects of a business or whether a merger or acquisition would benefit one or both companies. Thus, the first step of your M&A plan is to research and strategize.

Start your research by asking and finding documentation to support your answers to questions like these:

  • What is your business’s current and forecast for financial health?
  • What is the current shape of and forecast for your industry and your suppliers’ industries?
  • What could your business gain from a merger or acquisition?
  • How could a merger or acquisition result in increased value (synergy)?
  • What ideal criteria would you like to see in a counterpart to the merger or acquisition, including factors such as geographic location, products/services rendered, brand strength, and market share?

With the information collected during your research and the answers to questions like these, develop criteria for your ideal merger or acquisition and a strategy for achieving it.

Once you’ve established your M&A strategy, you can begin further research, this time to identify potential targets for a merger or acquisition. Potential targets should meet the ideal candidate criteria established in the research phase. Whether you seek to merge with or acquire another business or, instead, are investigating selling your business, the information collected and strategy developed thus far will help guide your identification of potential counterparties to the transaction.

After completing the list of potential counterparties, it’s time to make contact with the appropriate leadership at each business on your list. These conversations can help you determine which businesses would be open to further discussions and may even provide insight into the potential targets that was not acquired in the research stage.

For businesses open to further discussion, you next need to obtain additional financial information and perform valuation analyses to help determine each business’s suitability for your ideal transaction. Businesses often rely on M&A attorneys to help identify the type of financial documentation needed and the appropriate valuation method(s) for the business or industry. Review of this documentation can help narrow down the field of target counterparties.

Upon identifying your top choice, begin negotiating the merger or acquisition. Successful negotiation requires experience and knowledge in the business, the industry, and the legal ramifications of the transaction, making an M&A attorney an ideal facilitator in this step. When parties agree on terms to move forward, those terms are often memorialized in a letter of intent for business merger or acquisition.

Assuming successful negotiations, the next step is performing due diligence. In this phase, the acquiring business engages in a thorough review and analysis of every part of the target business. Because parties exchange much more confidential information than earlier, execution of confidentiality or nondisclosure agreements is commonplace.

If, at the conclusion of due diligence, both parties wish to move forward with the transaction, an M&A attorney drafts (or reviews the other party’s draft of) formal purchase and sale contracts. Here, the parties must agree on whether the transaction will involve a sale of the entire business (in corporations, a share purchase) or, instead, an asset purchase.

Before the transaction can be completed, the acquiring business must arrange financing. While the acquiring business investigated financing options and the feasibility of the purchase in a general sense earlier in the M&A process, the ultimate financing arrangements are completed at this point.

When the M&A deal closes, the newly merged company begins the process of combining the management teams and other personnel, reducing redundancies, and creating a new combined business.

Records Required for a Merger or Acquisition

Evaluation of an M&A deal is impossible without complete and accurate financial documentation from the target company. Some records should be readily available if the company keeps good business records, but other documentation may need to be prepared specifically for the merger or acquisition. An experienced M&A attorney can help you prepare and evaluate the records needed, which generally include items like the following:

  • Financial statements for a defined reporting period;
  • Credit report for the business;
  • Description of the business’s internal control procedures;
  • The business’s capitalization, amortization, and depreciation methods;
  • The business’s budget;
  • The business’s projections and strategic plans;
  • Accounts receivable and items in collections; and
  • Many other detailed accountant-prepared/-reviewed financial records

Why M&A Requires Legal Services and Other Experts

Businesses may entertain a merger or acquisition to continue to prosper or to cut losses. Regardless of the motivation, M&A deals require professional assistance to protect them from entering into a deal that hurts instead of helps. M&A attorneys and the experts they engage have the knowledge and skills to negotiate, draft and review contracts, and prepare and review the financial documentation required throughout the M&A plan.

If you’re considering a merger or acquisition for your business, whether you’re buying or selling, you need counsel from a reliable M&A attorney throughout the process. For a consultation, call the firm at (304) 523-2100 or complete this online contact form.