What are the two sides of M&A? Get ready to delve into the strategic maneuvering and meticulous planning that drive the biggest business deals.

What are the Two Sides of M&A?

Trying to decide between a hot dog or a pretzel, you overhear a conversation in the concession line, “how do mergers work?”, he asked. His friend supplies a brief explanation which prompts the response, “what are the two sides of M&A?” Read and discover what his friend told him.

What are the Two Sides of M&A?

The two sides of M&A (merger and acquisition) are the buy side and the sell side. An M&A transaction, as with all transactions, has a buyer and a seller with defined roles, competing agendas, and differing activities. Let’s examine the participants, objectives, and activities that add context to, what are the two sides of M&A?

The Buy-Side

The Participants – The buyers in an M&A transaction are investment funds, corporations, private equity (PE) firms, and individual investors.

Objectives – The objective is to purchase a company that will enhance the acquirer’s growth initiatives, add market expansion, generate synergy, provide product, service, and customer-based diversification, and add to existing technology infrastructure.

Buy-side investors seek to acquire the company, known as the target, for less than its liquidation value or at a reasonable premium. The buyers may be strategic buyers meaning that they are in the same industry as the target firm, or they may be financial buyers who are not in the same target firm industry.

Activities – The buy-side investors perform the following task to acquire an appreciating asset:

Identify Target Firm – Prospect and identify a company that meets the buyer’s investment criteria.
Due Diligence – Extensive quantitative and qualitative financial analysis, coupled with regulatory and legal profiles, and a risk/reward assessment are performed.
Valuation – Due diligence produces comprehensive data which is evaluated to determine acquisition suitability.
Financing – Buyers secure the acquisition purchase money needed to consummate the transaction. Financing may be a combination of debt, equity, cash reserves, bonds, or mezzanine (bridge loan) financing.
Negotiations – The buyer and the target firm initiate discussions on transaction price and consideration structure, terms and conditions, timelines, and regulatory and legal requirements and challenges.
Post-Acquisition Integration – The buyers engage the target firm in post-acquisition integration planning. Blending the cultures and operations of the firms is a methodically slow process that requires adept execution if the newly formed entity is to succeed.

What are the two sides of M&A? The buy-side and the sell-side employ advisors, usually investment banks, law, and accounting firms to assist with target identification, due diligence, valuation, financing, and negotiations. Let’s look at the sellers.

The Sell-Side

The Participants – The target company owners are the sellers in an M&A deal. The sellers can be corporations, owner entrepreneurs, or exiting PE firms.

Objectives – The sell-side objective is to maximize the sell price and transaction terms and conditions to generate maximum owner and shareholder value.

Activities

Sale Prep – the sellers position the company to be sold, which entails financial, regulatory, and legal document collection and a detailed synopsis of operations and technology infrastructure.
Due Diligence Assistance – Provide the buy-side with full access to all pertinent target firm financial, regulatory, and legal information and avail themselves of any needed additional documentation and inquiries.
Valuation – Sell-side sellers set a reasonable sales price based on enterprise value, estimated value of intangibles, and a realistic equity premium.
Buyer Screening – Evaluate potential suitors based on the offer price, strategic fit, the possibility of regulatory or legal objections, and financial capacity to close the transaction.
Negotiations – Engage in open dialog to affect a favorable price and terms for sell-side shareholders.
Transaction Close - The seller works with the buyer to satisfy all escrow closing conditions to consummate the acquisition.

What are the two sides of M&A? The buy-side and the sell-side are the two sides of M&A. Both camps have distinct roles, objectives, and strategic agendas, but their goal is the same; to strike the most advantageous deal for their shareholders.