Module XI·Article II·~2 min read
M&A Process: Due Diligence and Deal Structure
M&A and Deal Structuring
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The M&A deal process is a complex multi-stage procedure, requiring coordination between investment banks, legal consultants, financial advisors, and the management teams of both sides. A typical large M&A transaction takes from 3 to 12 months. Understanding the process is critical for both consultants and corporate finance professionals.
Phases of the M&A process. Phase 1 — Strategy and Preparation: determination of strategic goals, selection of criteria for the target company, development of a financial model, selection of an investment bank advisor, internal approval by the board of directors. Phase 2 — Search and Initial Contact: creation of a longlist (50–100 companies), shortlist (5–10), initial contacts, NDA (Non-Disclosure Agreement), exchange of preliminary data. Phase 3 — Structured Sell-Side Process (sell-side auction): preparation of the Information Memorandum (IM), sending out the Process Letter, receipt of Indication of Interest (IOI), selection of finalists for the second round, virtual data room (VDR), management presentations, receipt of Binding Bids.
Due Diligence (DD) — comprehensive company review prior to the transaction. Financial DD: analysis of financial statements (historical and projected), quality of earnings (QofE — identification of normalized EBITDA, exclusion of one-time items), working capital analysis, debt-like items. Legal DD: corporate structure, contracts, litigation risks, IP, compliance. Commercial DD: analysis of the market, competitive position, client base, pipeline. Tax DD: structure of tax liabilities, risks, tax positions. Operational DD: business processes, technologies, personnel. IT DD: infrastructure, cybersecurity, technology stack.
Deal structuring. Share purchase vs Asset purchase: share purchase — the buyer acquires the entire company, including all liabilities and risks (simpler, but you accept all historical risk); asset purchase — selective acquisition of assets (more complex, but unwanted liabilities can be excluded). Consideration: cash (simplicity, no dilution), stock (preserves buyer's cash, shares risk with target shareholders), earnout (part of price depends on future performance — solves valuation disagreement problems). Representations & Warranties (R&W), Indemnities, MAC (Material Adverse Change) clauses — legal protections.
Key documents: Letter of Intent (LOI) / Term Sheet — preliminary agreement on basic terms. Share Purchase Agreement (SPA) — final legal document. Disclosure Schedule — disclosure of exceptions to R&W.
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