Merger Process – Five Stage Model

Today large companies are trying to find additional sources of scaling, the most common of which are mergers and acquisitions. This article will consider how such deals are carried out, what goals it allows to achieve and what stages it consists of.

M&A deals: why are they carried out?

Mergers and acquisitions (M&A) is a set of actions aimed at increasing the total value of assets through synergies, ie the benefits of joint activities. In short, mergers and acquisitions describe the transformation of two companies into one. A merger process five-stage model is the creation of a new company as a result of a merger of two equivalent companies, and an acquisition is the acquisition of an acquiring company by an acquiring company, as a result of which the acquired company ceases to exist and the acquirer increases.

The main internal reasons for M&A deals are the synergetic effect, ie increasing the productivity of the enterprise as a result of the merger, the integration of individual parts into one system, where the effect of the interaction of elements exceeds the sum of the results of each element. The synergistic effect depends on the volume of activity, the combination of additional resources, increasing the competitiveness of products, etc., which can lead to savings. The synergistic effect can take different forms depending on the goals of the management of the buyer company in the process of M&A deals.

The stages of merger integration planning

There are 5 stages of the merger process:

  1. Preliminary negotiations

Any M&A transaction begins with an appropriate decision. The owners of the firms negotiate a merger and organize negotiations. Usually, the decision to merge is made at an unscheduled meeting of the owners of the company.

  1. Due diligence procedure

This process takes from a couple of weeks to a couple of months. Due diligence is a set of analytical and operational measures aimed at comprehensive verification of the legality and commercial attractiveness of the planning agreement, investment project, procedure, etc. to avoid or minimize existing business risks. To obtain objective and reliable information about the activities of the company audited through the Due diligence procedure, it is necessary to approach it systematically, taking into account internal and external factors, the effectiveness of internal audit, which will ensure risk management.

  1. Preparation of documents

Each transaction requires its own set of documents. To merge, you need an application for registration of a new enterprise; constituent documents of the organization; receipt of payment of the state fee; copies of the publication in the State Registration Bulletin on the merger procedure; merger agreement. When organizing the takeover procedure of a company, a merger agreement is signed, which fixes the procedure and date for organizing a general meeting of business owners, as well as changes in the constituent documents of the enterprise to which the legal entity is joining.

  1. Conclusion of contracts with employees

In the process of the merger of the two companies, new contracts are concluded with all employees or the terms of existing employment contracts are changed. At the same time, employees may not agree to transfer to another enterprise.

  1. Signing and closing a deal

When a deal is signed, companies confirm their obligations, and when a deal is closed, they fulfill it. Signing and closing do not always take place on the same day. In complex transactions, some time passes between these stages.

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