The M&A Process Explained: A Practical Step-by-Step Guide

An M&A transaction rarely moves from “we want to buy this company” to “deal closed” in a straight line. The M&A process involves strategic planning, target evaluation, valuation, negotiation, due diligence, documentation, approvals and closing.

If you are new to mergers and acquisitions, start with our guide to What Is M&A? A Beginner’s Guide to Mergers and Acquisitions, which explains the fundamentals, terminology, transaction types and reasons companies pursue M&A. This guide takes the next step by explaining how an M&A transaction actually moves from an initial idea to completion.

The typical M&A process can be summarized as:
Strategy → Target Identification → Initial Discussions → Valuation → Term Sheet → Due Diligence → Negotiation → Definitive Agreement → Approvals → Closing → Integration

1. Define the M&A Strategy

Before approaching a target, the buyer needs to establish why it wants to do the deal.
The objective could be entering a new market, acquiring technology or intellectual property, gaining customers, increasing market share or achieving cost synergies.

The strategic rationale becomes an important test throughout the transaction:
Does this particular target actually help achieve the buyer’s objective?

2. Identify and Evaluate the Target

The buyer then develops criteria for potential targets based on factors such as industry, geography, revenue, profitability, technology, customers and growth potential.

Initial evaluation may rely on publicly available information, management discussions or a Confidential Information Memorandum (CIM) in a competitive sale process.
At this stage, the question is simple:
Is this business worth investigating further?

3. Begin Discussions and Negotiate a Term Sheet

After initial discussions, the parties may sign a Non-Disclosure Agreement (NDA) before confidential information is exchanged.
If interest develops, the buyer may submit an indication of interest or negotiate a term sheet.
A Term Sheet generally outlines key commercial terms such as proposed price, transaction structure, consideration, exclusivity, and the expected path toward definitive documentation.

Related Resource: To strengthen your understanding of the terminology used throughout an M&A transaction, explore DealCraft Academy’s First Year Associate’s Deal Vocabulary, a practical resource covering essential M&A terminology used in transactions.

4. Conduct M&A Due Diligence

This is where the buyer tests the assumptions behind the proposed transaction.
M&A due diligence typically covers (a) financial and tax matters, (b) legal and compliance, and (c) technical and commercial aspects:
The legal due diligence covers:

• Corporate records
• Material contracts
• Litigation
• Intellectual property
• Employment
• Regulatory compliance
• Customers and suppliers
• Technology and cybersecurity
• Operations

Diligence is not simply an information-gathering exercise. Its findings can change the economics of the transaction.
A material liability, for example, could lead to a price adjustment, additional indemnity protection, a change in transaction structure or, in serious cases, the buyer walking away.

5. Revisit Valuation and Deal Structure

Due diligence can confirm or challenge the buyer’s original valuation.
The parties may therefore revisit:

• Purchase price
• Share purchase vs. asset purchase
• Payment structure
• Earn-outs
• Working capital adjustments
• Representations and warranties
• Indemnities
• Conditions to closing

This creates one of the most important connections in the M&A process:
Due diligence findings → risk assessment → valuation and structure → contractual protection.

6. Negotiate the Definitive Agreement

Once the major commercial terms are settled, lawyers draft and negotiate the definitive transaction documents.
Depending on the transaction, this may be a Share Purchase Agreement (SPA), slump sale agreement, merger agreement, or another acquisition agreement.

The agreement establishes the legally enforceable terms of the transaction, including purchase price, representations and warranties, indemnities, covenants, closing conditions and termination rights.
This is where legal drafting converts the commercial deal into enforceable rights and obligations.

7. Obtain Approvals and Close

Before closing, the parties may need regulatory approvals, third-party consents, shareholder approvals, financing, or other conditions to be satisfied.
Signing and closing are not always the same event.
Signing occurs when the definitive agreement is executed. Closing occurs when the required conditions have been satisfied or waived and the transaction is completed.

8. Integrate the Business

Closing is not necessarily the end of the M&A transaction lifecycle.
The buyer may need to integrate employees, technology, operations, finance, customers, and management while working toward the synergies that justified the acquisition.
A transaction can close successfully but still fail to create expected value if integration is poorly managed.

M&A Process at a Glance

Stage	Core Question
Strategy	Why are we doing the deal?
Target	Who should we acquire?
Valuation	What is the business worth?
Term Sheet	What are the principal terms?
Due diligence	What are we actually buying?
Structuring	How should the deal be designed?
Documentation	How is the agreement legally protected?
Approvals	What must happen before closing?
Closing	How is ownership transferred?
Integration	How will the buyer create value?

Bringing It All Together

The M&A process is ultimately a sequence of decisions designed to answer three fundamental questions: Is this the right deal? Is it worth the proposed price? And how should the risks be allocated between the parties?
From defining the acquisition strategy and evaluating a target to conducting due diligence, negotiating the definitive agreement and completing closing, each stage can influence the next.

Understanding this lifecycle gives you the foundation to understand the more technical parts of M&A, including due diligence, transaction structuring, deal economics, drafting and negotiation.

Frequently Asked Questions

What is the M&A process?

The M&A process is the sequence of activities through which a company evaluates, negotiates, documents and completes a merger or acquisition.

What are the main steps in an M&A transaction?

The main steps are strategy, target identification, valuation, initial negotiations, Term sheet, due diligence, transaction structuring, definitive documentation, approvals, closing and integration.

What happens after a Term Sheet is signed?

The parties typically move into detailed due diligence and negotiation of the definitive transaction documents. A Term Sheet establishes the framework for the proposed transaction but does not necessarily guarantee that the deal will close. Most terms are still non-binding at this stage.

How long does the M&A process take?

There is no universal timeline. Deal complexity, regulatory approvals, financing, diligence findings and negotiations can all affect how long an M&A transaction takes.

What happens during M&A due diligence?

The buyer investigates the target’s financial, legal, tax, commercial, operational, technology and other relevant matters to identify risks and validate the assumptions behind the transaction.

What happens after execution of deal documents but before closing?

This time period within which the target obtains necessary statutory and contractual approvals, completes the necessary corporate formalities and fixes issues which are identified by the buyer during the due diligence process.

What happens at M&A closing?

Once the required conditions have been satisfied or waived, the parties complete the agreed transaction steps, which may include transferring shares or assets and paying the purchase consideration.