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

Whether you're buying your first company or preparing to sell your life's work, understanding the M&A process helps you navigate it successfully. Most business owners go through this process once or twice in their careers, while the professionals on the other side do it constantly.

This guide walks through each phase of a typical M&A transaction, what happens, how long it takes, and what you should be thinking about at each stage.

Overview: The Six Phases

A typical M&A transaction moves through six phases:

1. Preparation (4-8 weeks)
2. Marketing & Outreach (4-12 weeks)
3. Initial Discussions & LOI (2-4 weeks)
4. Due Diligence (4-8 weeks)
5. Negotiation & Documentation (2-4 weeks)
6. Closing & Transition (1-2 weeks)

Total timeline: 4-9 months for most middle-market deals. Smaller deals can close faster; larger or more complex transactions may take a year or more.

Phase 1: Preparation

The preparation phase is where deals are won or lost. Rushing to market with messy financials, unclear value propositions, or unresolved issues almost always costs money—either in lower valuation, extended timelines, or failed deals.

For Sellers

• Financial cleanup: Three years of audited or reviewed financials, normalized for owner compensation and one-time items
• Documentation: Organized contracts, employee records, IP documentation, customer lists
• Value drivers: Clear articulation of what makes your business valuable and defensible
• Deal team: Assemble your advisors—M&A counsel, accountant, and possibly an investment banker or M&A advisor

For Buyers

• Investment thesis: What are you looking for and why?
• Acquisition criteria: Size, industry, geography, financial profile
• Financing: How will you fund acquisitions? Equity, debt, combination?
• Integration capability: Do you have the resources to integrate an acquisition?

Phase 2: Marketing & Outreach

This phase looks different depending on whether you're running a formal sale process or pursuing a direct approach.

Formal Sale Process

Investment bankers create marketing materials—typically a teaser (anonymous overview) and a Confidential Information Memorandum (CIM)—and reach out to potential buyers. Interested parties sign NDAs to receive detailed information.

This approach maximizes competitive tension and typically yields higher valuations, but it's more expensive and time-consuming.

Direct Approach

For smaller deals or situations where confidentiality is paramount, sellers may approach a limited number of known buyers directly. This is faster but may leave money on the table without competitive pressure.

For Buyers

Proactive buyers develop target lists and reach out to potential acquisition targets directly, often working with intermediaries or attending industry events to source deals before they hit the market.

Phase 3: Initial Discussions & LOI

When a buyer expresses serious interest, both parties enter preliminary negotiations. This typically includes:

• Management meetings: Buyer meets the leadership team to assess culture fit and capabilities
• Preliminary questions: Buyer requests additional information to refine their understanding
• Valuation discussions: Initial conversations about price expectations

If both parties are aligned, the buyer submits a Letter of Intent (LOI). The LOI outlines key deal terms:

• Purchase price and structure (cash, stock, earnout, etc.)
• Assets or equity being acquired
• Key assumptions and conditions
• Exclusivity period (typically 60-90 days)
• Timeline to close

Important: The LOI is typically non-binding except for exclusivity and confidentiality. However, it sets expectations that are difficult to renegotiate later without good reason.

Phase 4: Due Diligence

Due diligence is the buyer's opportunity to verify everything the seller has represented and identify any risks or issues. It's exhaustive, sometimes frustrating, and absolutely critical.

Financial Due Diligence

• Quality of earnings analysis
• Working capital normalization
• Revenue and customer analysis
• Cost structure review
• Cash flow verification

Legal Due Diligence

• Corporate structure and governance
• Contracts and commitments
• Litigation and regulatory matters
• Intellectual property
• Employment and benefits

Operational Due Diligence

• Technology and systems
• Customer relationships
• Supply chain and vendors
• Facilities and equipment
• Key person dependencies

Sellers should expect to spend significant time during this phase responding to requests, providing documentation, and answering questions. A well-prepared seller with organized information gets through diligence faster and with better outcomes.

Phase 5: Negotiation & Documentation

As due diligence progresses, attorneys draft the definitive purchase agreement. Key negotiation points include:

• Representations and warranties: What the seller is guaranteeing about the business
• Indemnification: Who bears risk if those guarantees turn out to be wrong
• Escrow and holdbacks: Portion of purchase price held to cover potential claims
• Working capital adjustment: True-up based on balance sheet at closing
• Earnout provisions: Contingent payments based on future performance
• Non-compete and transition terms: Seller's obligations post-close

This phase often surfaces issues discovered in due diligence. Price adjustments, structural changes, or additional protections may be negotiated based on findings.

Phase 6: Closing & Transition

Closing is the formal transfer of ownership. Leading up to closing:

• Final conditions satisfied (financing, regulatory approvals, etc.)
• Bring-down due diligence confirming no material changes
• Funds flow prepared
• Signature pages executed

After closing, the focus shifts to transition—integrating the acquired business, communicating with employees and customers, and capturing the value that justified the deal.

Common Pitfalls

Inadequate preparation: Sellers who rush to market or buyers who start diligence without clear criteria waste time and create poor outcomes.

Unrealistic expectations: Sellers who anchor on peak multiples or buyers who expect distressed pricing often fail to close deals.

Neglecting the business: The M&A process is consuming. Companies that let performance slip during the process damage their valuations and sometimes kill deals.

Insufficient advisors: M&A is complex. Experienced advisors pay for themselves many times over through better terms, avoided mistakes, and successful closes.

How ThriveStart Helps

We support M&A transactions from either side of the table:

• Sell-side: Financial preparation, CIM development, due diligence coordination, deal negotiation support
• Buy-side: Target screening, financial due diligence, valuation analysis, integration planning

Our approach is hands-on and practical. We've seen what works and what doesn't across dozens of transactions, and we bring that experience to help you navigate your deal successfully.