M&A process: a guide to mergers and acquisitions

M&A transactions offer great opportunities for growth, market positioning and strategic realignment. At the same time, they carry risks: cultural differences, unexpected operational hurdles or synergies that cannot be realised. The process should therefore be steered with foresight from the outset. A checklist does not replace a detailed strategy. It provides initial orientation and helps ensure that no decisive step is overlooked.

The specific procedure varies depending on size and industry, but the basic process stays the same. It can be divided into six steps and takes between six months and several years depending on company size, industry and complexity. Contracts, tax structures and liability issues require sound expertise and experience. Many companies draw on established networks of advisers for this before the targeted search for suitable companies begins.

Every M&A transaction begins with a clear strategic intention. Without a well-founded answer to the question “Why are we acquiring?”, costly failure looms. The first phase must clarify what added value the combination brings and what objective the takeover pursues, such as growth, market entry or synergies. It also includes whether the deal really is the best option or whether there are alternatives, and how the transaction fits into the long-term corporate strategy.

It must also be clarified which structural and above all cultural aspects are decisive for the combination. A strategic M&A approach addresses financial key figures and cultural factors equally. Companies that plan a cultural due diligence from the outset reduce the risk of later problems in bringing the companies together. The time frame for this phase is two to six months. It lays the foundation for the transaction.

Not every company is a suitable takeover target. Selection should be based on strategic, financial and cultural criteria. It starts with a strategic market analysis and the search for suitable companies. This is followed by an evaluation of financial stability and growth potential, innovative strength and technological relevance, and cultural fit, that is, leadership style, decision-making processes and values.

The cultural due diligence, the careful analysis of corporate culture, should already be prepared in this early phase. It asks which values, ways of working and decision-making processes prevail in both companies. The foundation for a successful combination is laid when the right company is selected, long before the purchase. Market analysis and approaching potential targets require precision and patience. The time frame is three to nine months.

Once a suitable target has been found, negotiations begin. The aim is a declaration of intent, the letter of intent (LOI), which records the basic terms of the purchase. It must be decided early whether an asset deal or a share deal is sought. In an asset deal, only individual assets such as customer relationships, patents or machinery change hands. This reduces risks because liabilities are not automatically taken over.

In a share deal, the entire company is acquired with all its rights and obligations. This makes the due diligence more extensive, but the company remains intact as a unit, including its name, contracts and brand. In the negotiations, clear communication of synergies and expectations is essential. Differing ideas must be reconciled and possible stumbling blocks removed.

The negotiations are also a cultural trial run. Paying attention to differences in decision-making processes and ways of working in this phase means being better prepared for the combination later. In addition to personal contacts, digital platforms make it easier to access the market for company acquisitions, where companies also offer themselves for sale. The phase usually takes two to six months and ends with the LOI, which fixes the fundamentals of the deal.

Due diligence is the most intensive phase of the M&A process and takes two to six months depending on complexity. The term denotes a review carried out “with due care”. The target company is scrutinised from several perspectives. Financial due diligence examines balance sheets, liabilities and cash flow. Legal due diligence looks at contracts, liabilities and regulatory issues. Operational due diligence examines business processes, IT structures and supply chains.

The fourth area of review is cultural due diligence. It looks at corporate culture, decision-making structures and leadership attitude. Many companies underestimate this part of the review. Yet cultural values, communication structures and leadership principles are often more decisive for the success of the combination than operational processes. A careful review of all four areas saves costs in the long term and reduces the potential for deep-seated conflict.

After the due diligence, the contracts are finalised and signed. This phase usually takes one to three months and demands great precision so that the takeover proceeds smoothly and with legal certainty. For closing, it must be clarified whether all regulatory requirements have been met, which measures will ease the transition and how the combination will be communicated internally and externally. It must also be determined which managers and teams will steer the combination and who is responsible for implementation and monitoring.

An often overlooked aspect is trust management. If employees feel bypassed or there is uncertainty about the new corporate culture, even a financially lucrative deal quickly loses acceptance. The more clearly this step is planned and the more broadly it is set up and communicated, the more smoothly the subsequent combination proceeds.

The actual work of combining the companies begins with closing. Merging the two companies is a long-term process: the time frame is six to 24 months, and it often takes several years. Many transactions fail because the cultural glue between the different corporate cultures is missing. Three success factors are central. Structure means harmonising processes, IT systems and ways of working. Leadership calls for strong change management that involves employees in the change. Culture means connecting the corporate cultures with one another and actively shaping them.

Companies with an adaptive integration strategy that responds flexibly to cultural issues have better chances of success in the long term. The role of a post-merger manager or post-merger officer can be helpful: a person with high acceptance in the acquiring company who also gains the trust of the target's workforce. They reduce uncertainty, clarify questions and build a bridge between hierarchical levels, from operational processes to sensitive topics such as job security or new work processes.

A clearly defined plan with regular feedback loops, active communication and managers who steer the change deliberately underpins the lasting success of the M&A process. Continuous monitoring is part of this.

An M&A process can be planned. If the expected cultural fit nevertheless fails to materialise, withdrawal is often impossible or extremely expensive. Daimler and Chrysler experienced this: their ambitious goals failed because of cultural differences. A business combination is about more than assets: it is about established structures, identity and social security. Ignoring this risks resistance and losses in performance and productivity. In critical situations, quick fixes do not help. What is needed is a well-thought-out approach that deals with acute problems and develops lasting solutions.

Every business combination is unique. Without a clear structure and approach, there is a risk of financial and cultural wrong decisions that grow into complex problems in the long term. Once the process has started, even strong project leadership finds it difficult to correct initial mistakes.

The six steps serve as a guide for working through the M&A process strategically and sustainably and for not losing sight of it alongside the daily tasks of operational business. transformis's experience shows that every merger is different and a carefully thought-out process makes the difference.