5-step in the M&A Buy Side Process

MA Buy Side Process

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5 steps of the M&A Buy Side Process

The M&A buy side process is by no means standardised. It’s quite flexible depending on the sell-side’s marketing or both parties’ negotiations. In this lesson, we will break it down into five steps as follows:

  1. M&A strategies 
  2. Target Identification 
  3. Due Diligence 
  4. Negotiations and Closing
  5. PMI (Post Merger Integration) 
MAI's Vedio: 5 Step of the M&A buy side process

Step 1: M&A Strategy

M&A strategy refers to a company’s approach when pursuing acquisitions to achieve growth, create synergies, and maximise value. It is important in the M&A buy side process because it helps companies select the right deals that align with their objectives, navigate industry dynamics and competitive landscape, and ultimately enhance their financial performance and long-term prospects. By choosing an appropriate M&A strategy, a company can capitalize on opportunities for expansion, diversification, and improved efficiency.  

M&A strategies can be broadly categorised into four main types.

Horizontal M&A

In this strategy, a company acquires or merges with a competitor operating in the same industry and at the same stage of the value chain. The goal is to increase market share, reduce competition, and achieve economies of scale. For example, consider the merger between Exxon and Mobil, which created the world’s largest oil company. 

Vertical M&A

This involves acquiring a company operating in the same industry but at a different value chain stage. It aims to improve efficiency and reduce costs by controlling the supply chain. An example of this is Apple’s acquisition of chipmaker Anobit, which allowed Apple to integrate Anobit’s technology into its products, reducing reliance on third-party suppliers. 

Concentric M&A

In this strategy, a company acquires or merges with another company that has complementary products or services, often to expand into a new market or enhance its product offerings. For instance, Google’s acquisition of Nest Labs enabled Google to enter the smart home market, leveraging Nest’s expertise in home automation. 

Conglomerate M&A

This involves the combination of companies from unrelated industries, often for diversification purposes. The goal is to reduce risk and enhance financial performance. Big, mature companies may have this M&A buy side process. A classic example is Berkshire Hathaway, a conglomerate that owns companies across various sectors, such as insurance, energy, and consumer goods. 

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Selecting the right M&A strategy can pave the way for a successful deal that adds long-term value to your organization. Setting up a weak strategy in your M&A buy side process would be very risky for a company. A poorly chosen strategy may result in several negative consequences, including: 

Financial losses

If the acquired company or merged entity fails to generate the expected returns or synergies, it can lead to significant financial losses and impact the organization’s overall financial health. 

Cultural clashes

Merging with or acquiring a company with a vastly different corporate culture can lead to workplace conflicts and disruptions, affecting productivity and employee morale. 

Operational inefficiencies

A wrong M&A strategy may fail to create the desired cost savings or operational synergies, leading to increased complexities and difficulties in managing the combined entity. In order to minimise these risks, it is crucial for companies to carefully evaluate and choose the right M&A strategy that aligns with their objectives, growth plans, and industry dynamics.

Step 2: Target Identification

As a second step in the M&A buy side process, identifying the right target is essential for ensuring the success of your M&A strategy and achieving your business goals. If you set up strict criteria for the target, it is much easier to create a refined shortlist of suitable companies to acquire. Let’s delve into some key considerations for effective targeting. 

Develop criteria

Based on the M&A strategy, you should create a list of criteria that potential targets should meet. This may include factors such as industry, market position, financial performance, and cultural fit. Establishing these criteria allows you to streamline searching in the M&A buy side process and quickly narrow down potential targets. 

Conduct market research

In-depth market research, a comprehensive analysis of the target industry, will provide valuable insights into the competitive landscape, emerging trends, and potential opportunities within your target industry. This information will help you identify companies that may be ripe for acquisition or merger. 

Use multiple channels

Don’t limit your search to one channel. Instead, leverage various sources of information, such as industry reports, news articles, trade shows, and networking events. In addition, consider engaging the services of an investment banker or M&A advisor who can provide access to a wider pool of potential targets. That is important in your M&A buy side process.

Prioritise targets

After identifying a list of potential targets, evaluate each one based on your established criteria and rank them in order of priority. This will help you focus on the most promising opportunities and allocate your resources effectively. 

Initiate contact

Once you’ve identified your top targets, initiate contact through a formal approach, such as a letter of intent  (LOI) or a non-disclosure agreement (NDA). Be prepared to share information about your company’s objectives, financial position, and strategic fit, as this will help build trust and facilitate negotiations. 

Following these steps could increase the likelihood of finding the right company to merge with or acquire, setting the stage for a successful M&A transaction.

Second M&A buy side process

When you find a potential investment target company at this stage, you can conduct preliminary due diligence after submitting an NDA and receiving materials such as an investment memorandum (IM). Preliminary due diligence refers to the initial assessment of a potential target company to identify risks and opportunities before proceeding with a more in-depth investigation. Meanwhile, due diligence can be conducted separately from commercial due diligence (CDD) and financial due diligence (FDD). You can conduct company valuation during commercial and financial due diligence.


Once you’ve found the right target company and want to know it more through due diligence, you should conduct a company valuation before submitting an LOI. Valuation in the M&A buy side process helps the buyer determine a reasonable purchase price. Numerous methods can be utilised to arrive at the target company’s value, such as the discounted cash flow (DCF) method or the comparative (or market) approach, which will be thoroughly discussed in later topics. 

The DCF method is useful for finding the value of companies with predictable growth rates and stable cash flows by forecasting their future cash flows and discounting them back to their present value at an appropriate discount rate.  

The comparative approach uses multiples of the target with those of ‘comparable’ companies in the same industry. It is a suitable method when the target has many similarly listed companies on the stock exchange. 

Letter of Intent 

If you feel that the target company is suitable for acquisition and is worthy of due diligence, you will submit a letter of intent (LOI) during the M&A buy side process. An LOI is a non-binding document that presents the suggested terms and conditions of the acquisition. It could also be served as a fundamental basis for further negotiations between the buyer and seller. Items typically included in the LOI are: 

  • Deal structure 
  • Purchase price and payment terms 
  • Due diligence process and requirements 
  • Timeline 
  • Target company representations and warranties 
  • Key closing conditions such as regulatory and shareholder approvals 
  • Confidentiality and exclusivity provisions 

When the LOI is sent to the seller, their legal counsel will review it and may continue by renegotiating the proposed terms and conditions the buyer outlined. The formal acquisition process continues once the seller accepts the letter of intent.  

Step 3: Due Diligence

Third M&A buy side process

Due diligence in the M&A buy side process is the work of thoroughly investigating and evaluating a target company before finalising a deal. Its role is to identify potential risks, validate the target company’s financials, legal status, and operations, and assess its overall value. It also helps to uncover potential synergies and integration challenges. 

Due diligence is crucial in M&A because it helps parties make informed decisions, mitigate risks, and avoid costly mistakes. By conducting a comprehensive review of the target company, buyers can ensure they are making a sound investment, while sellers can demonstrate their company’s value and credibility. Overall, due diligence contributes to the success of an M&A transaction by reducing uncertainties and fostering trust between the parties involved. 

Due diligence can be divided into three main topics:

Commercial due diligence (CDD)

CDD involves evaluating the target company’s market position, competitive landscape, and growth potential to determine the deal’s viability and potential synergies. It plays a role in assessing the target’s strategic fit within the acquirer’s business plan. 

Financial due diligence (FDD)

FDD is regarded as one of the most important DD in the M&A buy side process. It focuses on verifying the target company’s financial statements, performance, and projections, helping identify any financial risks or discrepancies. Its role is to ensure that the acquirer accurately understands the target’s financial health. 

Legal due diligence (LDD)

LDD involves reviewing the target company’s legal structure, contracts, compliance, and potential liabilities to uncover any legal risks or issues. Its role is to protect the acquirer from potential legal problems that could arise post-transaction. 

DDs in the M&A buy side process

Step 4: Negotiations & Closing

Negotiation and deal closing of the M&A buy side process  are crucial aspects that require careful attention. Both parties need to communicate effectively, strategically plan, and understand the deal terms. 


  • During the negotiation phase, it is vital to concentrate on the Sale and Purchase Agreement (SPA), as it sets the foundation for the relationship between the buyer and seller. The SPA outlines the transaction’s terms and conditions, which both parties will discuss and agree upon. 
  • In the SPA, the purchase price should be based on the target company’s financials and the seller’s expectations. Through negotiation, both parties aim to reach a final price that reflects the target’s fair market value and is supported by due diligence findings. 
  • Regarding the deal structure, both parties need to clarify payment terms, the timing and method of payment, currency, and earn-out provisions that link the purchase price to future performance targets. Negotiating representations and warranties is also important to protect the buyer against any inaccuracies in the information provided during the due diligence. 
  • To allocate risk between the parties,  indemnification provisions should be established. These provisions allow the buyer to recuperate losses if the seller breaches any representations and warranties or fails to disclose any material information. 
  • Throughout negotiation in the M&A buy side process, both parties should remain flexible and open to compromise while protecting their main interests. If the terms are unacceptable or the seller is unwilling to negotiate, the buyer should be prepared to walk away from the deal. 

Deal closing

  • As for the closing phase, a closing checklist should be created to ensure all conditions outlined in the SPA are met. The buyer should work closely with their legal team to prepare closing documents, such as bills of sale, assignment agreements, and transfer of stock certificates. 
  • Next, the buyer must obtain all required signatures and approvals, confirm that payments have been made, and coordinate with financiers to ensure funds are available for the purchase.
  • Lastly, the buyer needs to complete post-closing obligations, such as notifying employees and customers of the change in ownership, transferring contracts or licenses, and addressing any outstanding issues or disputes. 
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Step 5: Post Merger Integration

From the buyer’s perspective, post-merger integration (PMI) should be considered a part of the M&A buy side process. It is important to know that the return on M&A investments can vary depending on the level of the buyer’s PMI.  

PMI is the process of consolidating and streamlining the acquired company’s operations, systems, and culture with the acquirer. It lies in maximising synergies, enhancing efficiency, and ensuring the merged entity’s long-term success. 

During the PMI phase of the M&A buy side process, the buyer can take several practical steps to ensure a smooth and successful integration.  

  • During the due diligence, the buyer should develop a comprehensive plan covering various functional areas, such as finance, operations, HR, and technology. This plan should outline estimated timelines, budgets, and performance metrics to monitor the integration’s progress. 
  • The buyer may consider forming a strong and capable leadership team to manage the integration, including key executives from both the target and acquiring company. This team will help drive the integration process and ensure alignment between the two organizations. 
  • The buyer should also communicate regularly with all stakeholders, such as employees, customers, suppliers, and investors. They need to provide updates on the integration process and address any issues that may arise promptly. 
  • Throughout the post-closing period, the buyer should closely monitor the integration process and make adjustments as necessary to address any issues. This involves being responsive to unexpected challenges and being prepared to modify the integration plan. 
  • Financial performance tracking and benchmarking are critical for the buyer to assess the deal’s success. You should compare actual results to expected benefits, such as cost savings, revenue growth, and increased profitability. 

The buyer can ensure a smooth post-closing period in a transaction by managing stakeholders effectively, developing a well-planned integration strategy, and paying close attention to regulatory and legal conditions. 

Last M&A buy side process

Sources and Further Reading

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