Understanding Mergers and Acquisitions (M&A)

Mergers and acquisitions, often referred to as “M&A,” are transactions in which companies combine, buy, or sell businesses or business assets. These transactions are a common way for companies to grow, enter new markets, acquire talent or technology, or achieve operational efficiencies.

A merger typically occurs when two companies of relatively similar size agree to combine into a single entity. An acquisition, by contrast, involves one company purchasing another company or a controlling interest in it. Acquisitions can be structured in many ways, including stock purchases, asset purchases, or mergers where one company survives as the legal entity.

The M&A process usually follows a series of structured steps.

First is strategic planning and target identification. A buyer identifies its business goals—such as expansion, diversification, or cost savings—and evaluates potential target companies that align with those objectives.

Next comes initial discussions and valuation. The parties may sign a confidentiality agreement and exchange high-level information. The buyer typically performs a preliminary valuation and, if discussions progress, often submits a letter of intent (LOI) outlining key deal terms such as purchase price, structure, and exclusivity.

The third step is due diligence, which is often the most time-intensive phase. The buyer conducts a detailed review of the target’s financials, contracts, intellectual property, employees, litigation, and regulatory compliance. Due diligence helps confirm the value of the business and identify potential risks.

After due diligence, the parties negotiate and finalize the various definitive transaction documents, including the purchase agreement or merger agreement. These documents address price adjustments, representations and warranties, indemnification, closing conditions, and post-closing obligations.

The transaction then moves to closing, where funds are transferred, ownership changes hands, and any necessary legal filings are made. Some deals also include post-closing steps such as regulatory approvals, earn-outs, or integration milestones.

Finally, post-transaction integration is critical to realizing the deal’s value. This may involve combining operations, aligning management teams, integrating systems, and communicating with employees and customers.

While every M&A transaction is unique, these core concepts and steps are framework for how deals are most often structured and executed.

Amanda practices corporate law. She can be contacted at [email protected] or at 941-263-1520.