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Buy-Side M&A Process: 7 Fundamental Steps Explained

Kison Patel

Kison Patel is the Founder and CEO of DealRoom, a Chicago-based diligence management software that uses Agile principles to innovate and modernize the finance industry. As a former M&A advisor with over a decade of experience, Kison developed DealRoom after seeing first hand a number of deep-seated, industry-wide structural issues and inefficiencies.

CEO and Founder of DealRoom

Now that the worst of the Covid-19 epidemic has passed, many businesses are looking around to assess their immediate competitive environment.

After a year in which they endured lockdowns and their customers faced social isolation, many businesses may be looking for an investment of some type to prop up their balance sheet. This is likely to lead to a spike in acquisitions in the next two years.

If your company is one of those that remained relatively unscathed during Covid-19, this could be the time for you to consider an acquisition. A combination of deflated company values and strong growth forecasts should encourage you.

In this article, DealRoom provides a complete guide to the buy-side M&A process, drawing on our experience gained across thousands of buy-side M&A participants that turned to us for their due diligence process.

For buyers that require a checklist of the processes that need to be undertaken before beginning their M&A process, DealRoom has put together an exhaustive list that its clients can access.

This list includes every step, from creating a long list of potential targets right through to post-merger integration (PMI), and can be used as a reference for whatever industry you happen to operate in.

Before we start it is worth mentioning that you can always talk to DealRoom about how we can enhance your buy-side M&A process.

So, the classic buy-side M&A process can be visualized in the following image:


But we want to describe this process under a little bit different angle which will be more clear to the reader. We define the process in 7 steps listed below.

Buy Side M&A Process Steps

  1. Developing a long list of companies
  2. Making initial contact 
  3. Choosing between targets
  4. Making an offer
  5. Due diligence process
  6. Closing the deal
  7. Post-merger integration
buy side m&a process

1. Developing a long list of companies

Choosing suitable targets is the keystone to good M&A.

It is not enough to take a scattergun approach to develop a long list, looking at all companies that fit a broad set of criteria. If you find yourself doing this, step back and ask yourself why you want to acquire a business in the first place.

What does the merged firm subsequently look like?

The more questions you ask, the greater your filter will be. This process will help you arrive at a suitable longlist of targets.

M&A deal sourcing

2. Making initial contact 

Experience tells us that your long list will quickly be whittled down to a shortlist.

The reasons for this are manifold but typically include:

  • i) the owners of a target company have no interest in selling,
  • ii) they are interested in a sale but not at a reasonable price, or
  • iii) the current state of the target company’s financial statements makes a deal unappealing or unfeasible.

The companies that don’t bring this baggage make it onto your shortlist.

Initial contact typically falls into unsolicited contact - whereby you make contact via LinkedIn, a call, or through an intermediary such as a lawyer or investment banker - or solicited contact, where the target company is already listed for sale on one of the many M&A platforms that currently exist.

In the case of the former, we strongly suggest using an intermediary if the target is a company in your vicinity - the approach will be taken more seriously and there’s less risk of it looking like you’re simply aiming to gain trade secrets from a rival firm.

In the case of dealing with a company listed on an M&A platform, you typically will not be able to establish the identity of the company before signing a confidentiality agreement with that company’s investment banker.

Once signed, the investment banker will provide you with an investment memorandum for the company - a confidential document, usually running from 20 to 30 pages, that outlines the most relevant details of the company.

3. Choosing between targets

Use the information gained from step 2 to make a more informed decision about which company represents the most attractive acquisition.

Having spoken to a few companies by now, you should have a better feel for the industry dynamics, and which companies look better placed to take advantage of them.

When deciding which company you would like to proceed with a transaction on, it's always a good idea to return to your initial question of why you’re undertaking this process in the first place.

4. Making an offer

Having discussed a potential deal with the company owner and/or its investment banker, you should now already have a feel for what the sell-side is looking to achieve in a sale, and what you’re willing to pay.

There is invariably divergence between the two. This is to be expected.

But be aware that your offer should be in the ballpark of the amount cited by the sell-side. If you feel you’re too far out, be polite and say it. Do not make a derisory offer as it may only serve to jeopardize a future deal between your companies.

A reasonable offer is made through a Letter of Intent (LOI). This is a non-binding initial offer made in writing that outlines how you will structure the deal for the target company, the scope of the due diligence you plan to undertake, and any other details that you would like to be addressed.

Assuming this is a reasonable offer, you can expect the seller to ask their attorney to look over the finer details in the letter and receive a response within a few days, often requesting some changes.

After some back and forth, you should hope to reach a deal in principle that will allow you to begin due diligence.

5. Due Diligence

Do not rush due diligence.

As tempting as it may be at this stage to spend as little time as possible on the process in order to push through a deal and take control of the target company, it pays in the long run to invest time and effort here.

As an experienced conduit in due diligence proceedings, DealRoom's diligence module has collected templates for companies undertaking due diligence. Do yourself a favor and look through the lists here before beginning:

At all stages, keep how this company is going to fit with your own - or indeed if it will fit with your own - after the transaction has closed.

Even if the company looks good under the hood, it may be that it’s just not going to merge well with your own company - be that for cultural reasons, strategic fit, or any other motive.

Whatever the reason, do not be afraid to pull out of a deal if the due diligence process tells you that it’s the right thing to do.

Useful resources:
How to Conduct Due Diligence When Buying a Business: Advice from M&A Experts
M&A, Due Diligence, and Integration from an Attorney's Point of View
master due diligence checklist

6. Closing the deal

If you conducted due diligence properly, by now you will know the target company (and its competitive environment) intimately.

Do the initial deal terms outlined on the LOI still strike you as reasonable?

If not, now is the time to revert to the target company owner and outline your reasons why. Use kid gloves: At this stage, they’re already set on selling the company, and being told that it is overpriced will be deflating.

The final contract for sale will look a lot like the LOI, the difference being that it is a legally binding document (and states as such at the outset).

It includes details about how the target company’s share certificates will be transferred to you.

Typically, both sides to the transaction agree on an attorney in advance that will act as an escrow. With the money transferred, and share certificates in hand, you have officially closed the deal for the target company.

7. Post-merger integration

Closing the deal is just where the hard work begins.

Post-merger integration can be seen as a continuation of the due diligence process, with the emphasis now being on how the target company functions within your own rather than as a standalone entity.

For this process too, DealRoom has developed a set of integration templates that you can avail of to ensure that you’re ticking all of the boxes and maximizing value from the process.

integration checklists


Whatever revenue range your company falls into, you’re likely to notice a spike in M&A activity over the next year or two as the dust settles on the Covid-19 pandemic.

If you’re one of the companies fortunate enough to be on the buy-side, you’ll benefit from using DealRoom’s buy-side checklists for the process, which was developed based on feedback from some of the biggest intermediaries in the industry.

Talk to us today about all of the benefits of working with us on your buy-side M&A process.


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