What is M&A and how does an acquisition process actually work?

  • Posted by: Frédérique Pardon

M&A stands for mergers and acquisitions, two distinct but related ways that companies combine or transfer ownership. In a merger, two companies join together to form a single entity. In an acquisition, one company purchases another and takes control of it. M&A transactions are used to accelerate growth, enter new markets, acquire capabilities, or create strategic value that would take years to build organically. The sections below answer the most common questions about how M&A deals are structured, how long they take, and why they sometimes go wrong.

What are the key stages of an acquisition process?

An acquisition process typically moves through five core stages: strategy definition, target identification and evaluation, due diligence, transaction execution, and post-deal integration. Each stage builds on the previous one, and skipping or rushing any stage is one of the most reliable ways to end up with a deal that destroys rather than creates value.

Here is how those stages break down in practice:

  1. Strategy and investment thesis: Before approaching any target, the acquiring company defines why it wants to make an acquisition, what kind of company it is looking for, and how value will be created after closing. Without this foundation, the rest of the process lacks direction.
  2. Target identification and evaluation: Potential targets are screened against the defined criteria. This includes an initial assessment of financial performance, strategic fit, and risk exposure before any serious commitment is made.
  3. Due diligence: Once a target is selected, a detailed investigation is conducted into its financials, operations, legal standing, and liabilities. This is where assumptions get tested against reality.
  4. Transaction execution: Valuation is agreed upon, terms are negotiated, and the deal is formally closed. This stage includes legal documentation, regulatory filings where required, and final pricing decisions.
  5. Integration and value realisation: After closing, the real work begins. The two organisations are aligned operationally and financially, and performance is tracked against the original investment thesis.

What is the difference between a merger and an acquisition?

A merger is when two companies combine to form a new, jointly owned entity. An acquisition is when one company purchases another and absorbs it, with the acquiring company retaining control. The key distinction is ownership structure: mergers imply a degree of equality between parties, while acquisitions involve one party taking a controlling stake in another.

In practice, the line between the two is often blurred. Many transactions described as mergers are structurally acquisitions where the acquired company’s brand or leadership is preserved for strategic or cultural reasons. The term “M&A” covers both scenarios because the underlying processes, valuation, due diligence, negotiation, and integration, are largely the same regardless of how the deal is labelled.

What matters more than the label is the deal structure: who holds decision-making authority after closing, how liabilities are allocated, and what happens to employees, contracts, and existing obligations on both sides.

How long does an acquisition typically take?

An acquisition typically takes between 12 and 24 weeks from the start of serious preparation to deal closing, though complex transactions can run significantly longer. The timeline depends on the size of the target, the complexity of its financials, the regulatory environment, and how well both parties are prepared before negotiations begin.

A realistic breakdown looks like this:

  • Preparation phase (4 to 8 weeks): Defining the investment thesis, screening targets, and establishing valuation parameters.
  • Execution phase (8 to 16 weeks): Running due diligence, financial modelling, and negotiating price and deal terms.
  • Closing and integration: This begins immediately after signing and can extend for months or even years depending on the complexity of the integration.

One factor that consistently extends timelines is poor deal readiness on either side. If the target’s financial data is incomplete, inconsistent, or unreliable, due diligence takes longer and negotiations become more contentious. Preparing financial documentation and ensuring clean reporting before entering a process saves significant time and reduces friction.

What happens during due diligence in an M&A deal?

Due diligence in an M&A deal is a structured investigation into the target company’s financial health, operations, legal standing, and risks. The goal is to verify that the assumptions behind the deal are accurate and to uncover any liabilities or red flags before committing to a price and structure.

Financial due diligence focuses on the quality of earnings, cash flow patterns, debt levels, working capital requirements, and the reliability of financial projections. It is not simply a review of historical accounts, it is an assessment of whether the numbers reflect the underlying business reality.

Beyond financials, due diligence typically covers:

  • Legal and compliance: Contracts, litigation, intellectual property, and regulatory obligations.
  • Tax: Historical tax positions, open assessments, and any structures that could create future liability.
  • Operations: Key customer and supplier relationships, employee contracts, and operational dependencies.
  • Commercial: Market position, competitive dynamics, and the sustainability of revenue.

The output of due diligence directly informs valuation and negotiation. If material risks are uncovered, they typically result in price adjustments, earn-out structures, warranty and indemnity provisions, or in some cases, a decision to walk away entirely.

How is a company valued in an acquisition?

A company is valued in an acquisition using a combination of methods, most commonly discounted cash flow analysis, comparable company multiples, and precedent transaction analysis. The final agreed price reflects not just the current value of the business but the acquirer’s assessment of the value it can create after taking ownership.

The most widely used valuation approaches are:

  • EBITDA multiples: The company’s earnings before interest, taxes, depreciation, and amortisation are multiplied by a sector-relevant factor. This is often the starting point for deal conversations.
  • Discounted cash flow (DCF): Future cash flows are projected and discounted back to a present value. This method is sensitive to assumptions about growth and risk, which is why those assumptions need to be stress-tested rigorously.
  • Comparable transactions: Recent deals in the same sector are used as benchmarks to assess whether the proposed price is in line with market norms.

Valuation discipline is one of the most critical elements of a successful acquisition. Overpaying is one of the most common reasons M&A deals fail to deliver expected returns. A strong valuation process includes not just arriving at a number but establishing a clear ceiling, the maximum price at which the deal still makes strategic and financial sense.

Why do M&A deals fail after closing?

M&A deals most commonly fail after closing because of three recurring problems: overpaying for the target, insufficient validation of assumptions before committing, and poor post-deal integration. The transaction itself is only the midpoint of the process, value is created or destroyed in what happens next.

Integration failure is the most common culprit. Two organisations with different systems, cultures, reporting structures, and ways of working do not automatically align just because a deal has been signed. Without a clear integration plan that begins before closing, performance typically deteriorates in the months following the transaction.

The other major failure mode is assumption drift. Many acquirers build their investment thesis on projections that were never independently validated. When the actual business performance diverges from the model, as it often does, the deal economics collapse. Rigorous due diligence and independent financial validation exist precisely to catch this before it becomes expensive.

A useful question to ask at any point in an M&A process is not just “can this deal be done?” but “should it be done?” That distinction, between deal feasibility and deal wisdom, is what separates transactions that create lasting value from those that simply get closed.

How we support M&A from strategy to closing and beyond

We guide companies through the full M&A process from a CFO perspective, combining independent financial validation with structured execution at every stage. Whether you are pursuing an acquisition, preparing for an exit, or evaluating a divestment, we work alongside your team to make sure decisions are grounded in financial reality, not just deal momentum.

Here is what that looks like in practice:

  • Finance Maturity Assessment: Before any transaction begins, we establish a clear baseline of financial quality and deal readiness, identifying gaps that could slow down due diligence or affect valuation.
  • Investment thesis and target evaluation: We help define the strategic rationale, target profile, and valuation framework so that the process starts with clarity rather than ambiguity.
  • Due diligence coordination: We manage and validate the due diligence process, ensuring that financial analysis actively steers negotiation rather than just confirming what both sides already believe.
  • Transaction execution: We support valuation, deal structuring, and negotiation with financial modelling that reflects realistic assumptions.
  • Integration and value realisation: After closing, we stay involved to ensure that the operational and financial alignment needed to realise the deal’s value actually happens.

If you are considering an acquisition, preparing your business for sale, or navigating a complex transaction and want a financially grounded expert services partner to guide the process, get in touch with us to discuss where you are and what the right next step looks like.

Frequently Asked Questions

What is the difference between a share purchase and an asset purchase in an acquisition?

In a share purchase, the buyer acquires the target company's shares and takes on everything that comes with them, including all liabilities, contracts, and obligations. In an asset purchase, the buyer selects specific assets and liabilities to acquire, leaving the rest with the seller. Asset purchases offer more control over what you take on, but they can be more complex to execute, particularly where contracts or licences need to be individually transferred.

How do I know if my business is ready to be acquired or to make an acquisition?

Readiness comes down to two things: financial clarity and operational resilience. If your financial reporting is inconsistent, your management accounts are unreliable, or your revenue is heavily dependent on one or two customers, those issues will surface during due diligence and either slow the process or reduce your valuation. Before entering any M&A process, it is worth conducting an honest assessment of your finance function, your data quality, and how well your business would hold up under external scrutiny.

What is an earn-out, and when is it used in M&A deals?

An earn-out is a deal structure where part of the purchase price is deferred and paid only if the acquired business hits agreed performance targets after closing. It is typically used when there is a gap between what the seller believes the business is worth and what the buyer is willing to pay upfront, often because future performance is uncertain or difficult to validate. While earn-outs can bridge valuation disagreements, they frequently create post-deal tension if the targets, measurement methods, or reporting responsibilities are not defined with precision in the legal documentation.

What are the most common red flags that emerge during financial due diligence?

The most common red flags include revenue that is concentrated in a small number of customers, inconsistencies between management accounts and statutory filings, normalised EBITDA adjustments that are aggressive or poorly documented, working capital that has been artificially managed ahead of the sale, and off-balance-sheet liabilities such as personal guarantees or undisclosed commitments. Any of these can result in price renegotiation, changes to deal structure, or a decision to walk away entirely.

How should we approach post-merger integration to avoid the most common pitfalls?

Integration planning should begin before the deal closes, not after. The most common pitfalls are failing to appoint clear integration ownership, underestimating cultural differences between the two organisations, and allowing day-to-day operations to drift while leadership is distracted by the transaction. A structured integration plan should define which systems, processes, and reporting structures will be unified, on what timeline, and with what success metrics, so that progress can be tracked against the original investment thesis from day one.

Do smaller or mid-market companies need the same level of due diligence as large corporates?

The scope of due diligence should be proportionate to deal size and complexity, but the principles are the same regardless of company size. In fact, mid-market and owner-managed businesses often carry risks that are harder to identify than those in larger companies, such as key-person dependency, informal customer arrangements, or financial reporting that has not been prepared with a transaction in mind. Cutting due diligence short on smaller deals is a false economy that frequently leads to expensive surprises after closing.

What role does a CFO or fractional CFO play in an M&A transaction?

A CFO or fractional CFO provides the financial rigour that keeps an M&A process grounded in reality rather than deal momentum. On the buy side, this means building and stress-testing financial models, coordinating due diligence, and ensuring the valuation reflects realistic assumptions rather than optimistic projections. On the sell side, it means preparing financial documentation, normalising EBITDA, and presenting the business's performance in a way that withstands scrutiny. For companies without a full-time CFO, bringing in fractional support specifically for a transaction is a practical way to access that expertise without the cost of a permanent hire.

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