Neil Patel

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Mergers and Acquisitions (M&A) is a common activity in the corporate world. Last year saw a fresh spike in M&A transactions. While mergers and acquisitions take place in almost every industry, they are very common in the healthcare, technology, financial services, and retail sectors due to the presence of large established players that tend to acquire smaller companies. M&A can be beneficial for both parties involved.

With that said, the process leading up to, and following a merger or acquisition can be tricky and time-consuming. Both parties need to go through multiple phases until the deal is completed and a merger or acquisition can be finalized. If you aren’t familiar with the M&A process, you could end up making serious mistakes that can affect your position during a merger or acquisition.

Whether you are a startup trying to merge or get acquired or a larger firm trying to acquire a smaller firm, you should always be prepared when walking into a major M&A conservation. This article will equip you with all the information you need to proceed with an M&A deal, so keep reading.

Remember that mastering the storytelling side and how you are positioning your business is critical when it comes to engaging and speeding up the process. This is done via your acquisition memorandum. This is super important to reach a successful acquisition. For a winning acquisition, memorandum template take a look at the one I recently covered (see it here) or unlock the acquisition memorandum template directly below.

What are mergers and acquisitions?

First things first, before we move on to the actual M&A process and learn how they work, it is important to know what mergers and acquisitions actually are. With that said, here is everything you need to know about these two transactions:


A merger involves two companies, most often from the same industry, merging together to form a new business entity. Once a merger is completed successfully, the two companies that existed prior to the merger get dissolved and the newly merged entity continues its operations. Or one is absorbed by the other. Normally the most popular brand name survives. Mergers take place as per an agreement between the merging parties, and both companies in a merger gain some kind of benefit from the deal. The newly formed entity will have members from both the firms in the management structure.

Normally a merger doesn’t involve any cash or credit as both companies willingly dilute and merge into a new one with stock. The purpose of a merger is usually to expand into a new market, improve revenues, increase profits, and benefit from each other’s expertise.

When a merger occurs, the stock of both companies is surrendered and the newly merged company issues stock under the new name. Or the absorbed company receives stock in the new owner. While mergers often occur, they are much less common compared to acquisitions.

The reason for mergers being less common is that it is rare for companies of equal sizes to give up their individual standing and merge into a single entity. However, it is entirely possible, and while the percentage might be lower in comparison to acquisitions, mergers occur around us all of the time.

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As the name suggests, an acquisition involves a larger company taking control of the smaller firm and its assets. However, unlike a merger, once an acquisition is successfully completed, the acquired company often ceases to exist and becomes a part of the acquiring firm.

Acquisitions often get a bad rep because they involve a complete takeover, and therefore can sometimes be seen as a hostile move to eliminate competition. However, there are other reasons why a company may want to acquire a smaller company, including improving their market share, improving economies of scale by acquiring suppliers, and reducing operational costs. With that said, there are some situations where an acquisition takes place solely to eliminate competition. One such example is when a company acquires another because the target’s technology, research, or capital is better than the acquiring company.

These terms are sometimes used interchangeably to describe this type of business dealmaking and transaction in general. However, there are fundamental differences between the two types of transactions, as explained above.

One of the most essential facets of a successful merger or acquisition is knowing how to value your company. If you need more information on how to do that, check out this video I have created. You’re sure to find it helpful.

What are some common terms used in mergers and acquisitions?

Now that we have the introductions out of the way, let’s take a look at some common terms related to mergers and acquisitions. Here is a list of commonly used terms during M&A:


The term dilution during an M&A refers to a situation where the value of the resulting company’s stock reduces. This may happen because the company issues new stock to the members of the other company’s shareholders.


Also known as a spin-off, this term refers to the type of M&A when a company sells one of its segments, to reduce its size.

Due diligence

Mergers and acquisitions involve a lot of investigation from both parties about the assets, liabilities, and overall financial performance of the other party. The process of investigating the claims and status of the other party during an M&A process is known as due diligence.

Friendly M&A

A friendly M&A is an acquisition where the target company agrees to get acquired by the acquiring firm.

Hostile takeover

During a hostile takeover, an acquisition takes place even if the target company’s management opposes the acquisition.


A company that is looking to buy a smaller company whose assets are low in value.

Shark repellent

Shark repellent may refer to any attempt made by the target company to avoid a hostile takeover by a larger company.

White knight

A white knight is a company or investor that can buy a target company at a fair price to save it from a hostile takeover at an unfair price.

Different types of mergers and acquisitions

When you actually get to the stage where your firm is ready for a merger or acquisition, you will have to look at the different types of M&A transactions. By knowing more about different types of mergers and acquisitions, you can choose the type that best suits your company’s situation. So without further ado, here are all the types of M&A that you might come across in the corporate world:

Asset purchase

An asset purchase is a common form of M&A where one company acquires the assets of the target company with the approval of the target company’s shareholders. So they can liquidate their assets, companies sell them in a situation where they are trying to close down operations, or in case of bankruptcy, etc. An asset purchase may be used to acquire and sell different types of assets including but not limited to equipment, vehicles, real estate, or intellectual property.


During this type of acquisition, an acquiring company acquires a division or subsidiary of the target firm. A carveout is used by the acquirer as a way to expand their customer base, increase revenue, or improve production.


Consolidation is a type of merger where two companies join forces to form a new company. Once the stockholders of both companies have approved the merger, the new company issues shares to the stockholders.

Management acquisition

Management acquisition as the name suggests involves an executive from one company acquiring majority shares in the target company. Once this happens, the target company becomes private and these transactions are mostly financed using debt.

Reverse merger

This type of merger is usually done by a private company, so it can go public as a new entity. During a reverse merger, a private company acquires a publicly listed shell company and merges with it to form a new public company that can trade shares publicly.

Tender offer

A tender offer is a form of merger where one company offers to buy the target company’s stock at a special price that is higher than the target’s current stock value. Shareholders must agree to accept the tender offer in order for the merger to be completed.

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How do mergers and acquisitions actually work?

Now you have a decent idea about what mergers and acquisitions are and the different types of M&A, let’s take a look at how mergers and acquisitions actually work. M&A involves various stages and in order to understand how mergers and acquisitions work, you have to familiarize yourself with each step of the process.

With that said, here are all the steps that are involved in a successful M&A process:

Developing an M&A strategy

Every M&A is done for a purpose, and therefore the first step of the M&A process is devising a strategy that can help achieve that purpose. A good M&A strategy should clearly answer the following questions:

  • What objective do you want to achieve through the M&A?
  • How will the company arrange funding to carry out the M&A?
  • What will the operational model look like after the merger or acquisition?
  • What parties will be involved in the M&A?

In short, an M&A strategy should specify the reason for the merger or acquisition and the desired outcome of the M&A transaction.

Due diligence

Once a company has a strategy for its M&A and has found a potential buyer or target company, the most crucial step of the M&A process begins is due diligence. While due diligence is mostly performed by the buyer, it can also be performed by the selling company in case it plans on retaining a stake in the company after the sale.

Due diligence involves the use of internal and external sources to find out the true worth of the other party, as well as analyze the performance and liabilities of the target company.


Valuation is the next step of the process after due diligence has been completed, and it involves evaluating the target company based on various metrics and performance indicators. Valuation helps make sure that the target company aligns with the M&A strategy of the acquiring company.

The acquiring firm will need access to various types of information about the target to complete the valuation process. The goal of the valuation stage is to find out the target company’s worth by estimating the future cash flows, and there are various formulas that can be used to find them.


Once the valuation process is complete, the acquiring company can place an offer for the target company and both parties can discuss the offer if needed.


At this stage, both parties will draft purchase or sale agreements, and these agreements include the mode of financing that the buyer will use to complete the transaction. Usually, buyers can choose between cash or stock to finance the M&A deal. However, the buyer may also choose to take on the target’s debt as a way to pay off the seller. Once financing is complete and the purchase agreement is signed, the M&A is considered complete. Both parties then sign any other closing documents to mark the completion of the merger or acquisition.


During this stage, the acquiring or merged company will start to form the structure of the new firm and begin the integration process in case of a merger.

The integration process usually involves cooperation from both parties, so the process is as smooth as possible. Not to mention, the integration process involves a lot of compliance and other legal requirements, so it is best to have a lawyer on board to assist with this step of the M&A.

After the M&A is marked complete, there will be ongoing checks to make sure it is performing as expected and whether the goals set for the transaction have been met or not. Post-merger is a lengthy phase, and it may require as much effort and time as the M&A process, if not more.


Whether it is your first acquisition or you are trying to sell or merge your company, you have to familiarize yourself with the M&A process in order to ensure a fruitful transaction. You should now have a great start on the information you need to go into a successful M&A deal.

You may find interesting as well our free library of business templates. There you will find every single template you will need when building and scaling your business completely for free. See it here.

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Neil Patel

I hope you enjoy reading this blog post.

If you want help with your fundraising or acquisition, just book a call

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