Depending on the complexity and factors leading to delays, an M&A deal can last 6 months to several years. Many investors, including sellers and buyers who are not experienced in the M&A field, often expect the M&A process to be quick and smooth, but do not fully envision the factors that can cause delays in the process of implementing an M&A deal.
The time factor is always considered and evaluated as one of the most important factors determining the success of an M&A deal because it directly affects costs such as opportunity costs, time costs, effort costs and so on for each party. Therefore, to accurately and effectively determine the time target, investors should consider the following factors:
1. Timeline of an M&A Deal
Each party needs to develop the M&A timeline. The seller and buyer need to clearly define the stages of the M&A process and the timeframes for each stage in a reasonable manner. To achieve this, it is very important to evaluate the transaction structure properly, thoroughly research the target company, and partners, develop an implementation strategy, and so on. Once the timeline has been established, investors need to stick to it and will only adjust it when really necessary. Please note that it will be much easier to execute when there are specific goals, including time goals.
In addition to the schedule for each party’s work and stages, both parties also need a common schedule. They must adhere to it to avoid any delays from one party as well as to enhance each party’s sense of responsibility.
2. Estimated time to perform steps in an M&A deal
A typical M&A deal will go through the following basic steps with corresponding periods:
- Searching and identifying target companies, potential sellers or buyers: this step typically takes from 3 months to 2 years for the buyer, depending on whether they do it themselves or through an intermediary and the desires and goals set when implementing M&A. The search for potential buyers will be shorter, as many sellers view M&A as a professional business activity rather than a one-time event. Accordingly, many sellers proactively make proposals and search for suitable buyers through intermediaries. In addition, the time to carry out this stage also depends on the regional culture of the investors, for example, Japanese investors tend to be more cautious and meticulous, so it takes more time, while investors from Europe handle it more quickly and decisively.
- Signing of Letter of Intent or Termsheet: The estimated time for this stage is about 01 month to 02 months. However, in many cases, the actual process is shorter or longer depending on the goals of the parties.
- Due Diligence Phase: Due diligences on finance, accounting, human resources and legal aspects are typically expected to be completed within a month. However, most M&A deals require more time to complete this phase.
- Stage of concluding and implementing the Share/Asset Purchase Contract: The time for negotiating and signing the Contract normally takes from 15 days to 1 month. In some cases, the parties need more time to consider the risks after having issued the in-depth due diligence reports.
The implementation of the Share/Asset Purchase Contract typically takes from 1 month to several years, depending on the parties’ preferences. This timeline can be extended, especially when the seller’s withdrawal plan significantly impacts the buyer’s M&A goals or raises concerns about customer retention and legal risks.
3. Delay factors affecting M&A deal execution time
Factors that can cause delays in an M&A deal include not having a clear strategy, misidentifying the target, not visualizing the stages of the M&A deal, or not fully assessing the target company or partner.
Even if the parties agree on the basic terms of the M&A deal and document them in a Termsheet or Letter of Intent, the deal’s success remains uncertain. Due diligence starts after the Termsheet or Letter of Intent is established. If the parties are not well prepared, this is a stage that can take a long time and does not guarantee the estimated time in the previous schedule. Many deals have been delayed despite the timeline being established by the parties. Therefore, always have a backup plan for such situations and promote the partner so that the delay does not last long.
At the stage of negotiating and signing the Share/Asset Purchase Contract:
Based on the results of the in-depth due diligence, each party often needs time to readjust their goals or expectations and enter into negotiations. Accordingly, the buyer needs time to consider the key terms of the contract, especially the price and prerequisites to limit legal and financial risks. A negotiation strategy follows this. The seller needs to submit the Share/Asset Purchase Contract to the highest authority for approval such as the General Meeting of Shareholders or the Board of Members, the Owner after agreeing on important contents with the buyer.If the seller has not conducted thorough internal due diligence beforehand, the process will take longer than expected. Unexpected challenges will arise, requiring the development of new strategies and plans to manage the current and upcoming stages while considering risks and options for executing the agreement. This often happens to first-time sellers – investors often encountered in the Vietnamese market.
Post-M&A:
The acquisition of the target company and cultural integration are considered quite challenging, especially if the buyer and seller’s corporate governance and social cultures differ significantly. This stage is usually considered the most time-consuming, and the buyer needs the most support from the seller.
4. Conclusion
Thus, for the M&A deal to take place on schedule, investors need to pay attention to the timeline and consider factors that may delay the M&A deal, and have solutions and backup plans to promote the deal implementation process to take place quickly and effectively.
