Focus on a must in interviewing : the sell-side M&A process

The organization of an M&A process follows a precise logic and different essential phases that need to be mastered. This process, which lasts on average 3 to 4 months, involves a wide range of players, primarily investment banks, and is often the basis of a major turning point for companies that embark on this path.

Whether you are applying for an internship or a permanent contract, you will undoubtedly not escape this unavoidable theme, and recruiters will not hesitate to challenge you on your precise understanding of the latter.

Let's go over the main stages of this rigorous and breathtaking process in detail!

How does an M&A process start ? 

First of all, let's remember that an M&A process can start in two ways:

• The investment bank is in charge and carries out an origination work, i.e. looks for potential buyers or targets, which it will propose spontaneously to other companies.

• The second possibility is the implementation of an execution mandate: in this case, the bank is directly approached by a client wishing to sell his company (in the case of a sell-side process). Both parties sign a mandate, and the process starts with the search for potential buyers. It is generally at this moment that the bank's remuneration is fixed with a fixed part (retainer fees), and a variable part (success fees) representing a percentage of the price of the transaction, if the latter is completed.

See more : Focus on M&A Opérations 

The 4 phases of an M&A process

The M&A process can be divided into 4 distinct stages with specific processes for each.

1. Preparation phase : 4 to 6 weeks 

The first step for the mandated bank will consist in the production of different elements of documentation including the teaser, presenting the company and its performance, but also the information memorandum (commonly called "info memo", or "pitch"), as well as the business plan. (We will come back to the characteristics and content of these different documents in future articles).

The bank will then identify all potential buyers (companies and/or investment firms).

2. Contact phase : 4 to 6 weeks

The bank then contacts all the potential buyers and sends them the teaser and the NDA (Non Disclosure Agreement), an essential document that prevents any information leak that could jeopardize the transaction.

The players who have signed this last document and who have shown a real interest can then receive the information memorandum, or "pitch book", a document of about fifty pages which goes into detail about the company being sold, its history, its activities, its results or its market positioning. Analysts as well as the bank's trainees may be asked to work on the elaboration of this document, hence the importance of mastering the components of this document.

Potential acquirers can then issue an initial non-binding offer (NBO), which underlines their strong interest and willingness to continue the process. It is important to understand that these offers are not binding on the various parties at this stage. The sell-side bank can then select several buyers who have expressed their interest in the due diligence phase.

3. Due diligence phase : 4 to 6 weeks

The due diligence phase consists of the verification, investigation or audit of a potential transaction in order to confirm the relevance of all facts and financial information related to the company.

A data room containing multiple documents on the company is made available to potential buyers. The latter also call upon legal, financial and tax experts with whom expert assignments are carried out. Meetings between the different management teams to discuss the future strategy of the entity to come, as well as visits to production sites are regularly organized.

At the end of this phase, the buyers who are still in the process of positioning themselves can submit a "Binding Offer" along with a proposed acquisition price. The bank then selects 1 to 2 of the most serious offers for the final negotiation phase.

4. Negotiation phase : 1 to 2 weeks

The last step of the process, the negotiations are generally only simple administrative formalities. The company for sale, advised by the bank, can then accept or not the offer which is proposed to him. If it accepts, the different parties then start the negotiations around the legal documentation and jointly draft the Share Purchase Agreement (SPA), a particularly important document that they co-sign to definitively seal the deal.

The latter is definitively recorded upon the transfer of the funds by the buyer.

Conclusion

An M&A process is based on a well-established sequence of various steps and involves multiple actors. In this article, we have outlined the main phases of this process that you may be asked to interview.