Chapter 4: The Agile M&A Process Model

Pre-Deal Phase: Scouting & Approach

A deal does not simply appear out of thin air. A significant amount of work and decision making takes place before a deal approaches the formalized stage of due diligence. Picture an M&A deal as a wedding: before a wedding can take place, the hopeful suitor must find a fitting partner to court. An M&A initiative enters a similar period of courtship, with acquirers seeking out suitable companies with which to merge.

Acquirers develop a business strategy, which defines overall objectives, capability gaps, priorities, and the potential areas in which M&A may be useful. A small and select group of executives and corporate development personnel, maybe working with an investment bank, initiate the M&A process. This group scouts out potential buyers or sellers in accordance with the broad strategic goals driving the intent to purchase or sell — the acquisition strategy.

Acquisition Strategy. The acquisition strategy is the ultimate goal guiding M&A initiatives, the fundamental strategic objective motivating the desire to buy or sell — the True North towards which everything is oriented. A software company, for instance, may want to expand its product offering in a particular area, or a manufacturing company may want to achieve production synergies in a given geographic region. A company may wish to acquire new intellectual property, human talent, or industrial equipment, or expand its customer base. Acquisition strategy is defined at the highest levels of the company before the search for potential target companies even begins — and it should remain foregrounded throughout the entire M&A lifecycle.

Oftentimes, corporate development professionals discover potential acquisitions as part of ongoing market research. In other instances, investment banks suggest the deal, or otherwise the deal emerges as the brainchild of a company’s CEO, product managers, or other top-level executives. Once a target is identified, the corp dev team runs early due diligence, focusing on financials and market assessments. If the corp dev’s analysis suggests that the asset is a good fit, the companies will sign a letter of intent (LOI), and the formal M&A project can begin.

For most companies, the M&A process unfolds as follows: the corp dev team completes the confirmatory due diligence phase, the executive team makes the formal decision to close, and the project is then handed off to the integration team to complete. M&A is an explicitly two-phase project conducted by independent teams — and this disjunction sets the integration team up for failure.

Let’s return to the marriage analogy. The front end of the deal parallels the courtship period, and the union of two families in marriage can be considered as the merger. As with marriage, M&A is not just about the big wedding day: closing the deal is just the beginning of a life together, of the two parties now acting as one. Both require ongoing work and deep understanding to find long term success and happiness.