The M&A Management Playbook and Toolkit

This section defines a few terms that are used in the accompanying documents. Some of the terms may be used a little differently by some companies or investment bankers / brokers, but efforts were made to ensure definitions are as consistent as possible. Note that many of the definitions around integration roles, teams, etc. are defined in the M&A Integration Methodology eBook (i.e. Executive Steering Committee, Integration Leader, etc.).

Day 1 Readiness Review

A detailed review of the Day 1 Workplan (action plan) by the Integration Leadership Team with the Executive Steering Committee (ESC) and Executive Sponsor (ES) (these roles and others are defined in the document “M&A Integration Methodology”). This review should happen 10 to 14 days before closing of the deal / Day 1, but there should be no big surprises. The ESC and ES should be aware of all critical / Level 2 decisions (see below) by this point. This is just the final review of all Day 1 actions for any final tweaking and discovery.

Day 1

The first day after closing of the deal. It is referred to as “Day 1”, because it is the 1st day that the two businesses are acting as one. “Day 1” is used to mark the execution of several actions such as communications to employees, etc.

Level 1 / Level 2 Decisions

Criteria for Level 1 and Level 2 integration decisions should be defined during the Integration Framework Definition (defined in the document “M&A Integration Methodology”), to outline which types of decisions can be made by the Integration Leadership Team (ILT) and Workstreams vs. the Executive Steering Committee (ESC) / Executive Sponsor (ES). Typically, only critical decisions like Organizational Structure, closing of facilities, etc. are escalated to the ESC / ES, but decision autonomy differs by organization, so must be clearly defined.

Phase I, II, III, IV and V Integration Workplans 

This refers to a phased approach for developing and executing Integration Workplans (action plans). This helps to organize and prioritize actions, as well as to coordinate some of the more complex actions cross-functionally. In this methodology, we define the phases as follows:

Phase I = Day 1

Phase II = Days 2-30

Phase III = Days 31-90

Phase IV = Days 91-180

Phase V = Days 180+

Workstream

Sometimes called “functional team”, this refers to a “stream” of work related to the due diligence and integration planning efforts. The business leaders should decide on which workstreams are necessary for their business. Common workstreams are Finance, HR, IT, Legal, Marketing, Sales, Engineering and Product Development. “Subteams” of workstreams are used if a further breakdown makes sense. For example, under Finance, there may be A/P, A/R and Procurement subteams. A workstream leader should manage the overall efforts for all subteams reporting to that workstream.

Desktop Due Diligence

Also known as Preliminary Due Diligence or Pre-Diligence. The preliminary review of a company through evaluation of data and documents, internet research, etc., to determine whether the company is a good fit strategically, financially, culturally, etc. typically happens before the Letter of Intent (LOI) is signed, but after it is established that there is interest by both companies. The depth of research at this stage varies, based on many factors, such as company size, complexity of the business, whether there is a broker and a book prepared, etc., but requires a Non-Disclosure Agreement (NDA) to be signed, so that financial information can be shared. In most cases, the target company does not share specifics about customers, for example, but may be willing to share the total revenue for their top 10 customers (but not share the names of those customers). This phase assumes that there are other potential buyers still in the running.

Letter of Intent (LOI)

A Letter of Intent, sometimes called Letter of Interest or LOI, is an agreement between a purchaser and a seller used to outline the initial terms of a merger or acquisition transaction. It typically details the estimated purchase price or range, the target close date, structure of the deal, and other terms, and is signed after Desktop Diligence and before full Due Diligence. The LOI is also a commitment by the purchaser to move to full due diligence and an indication of intent to close, although terms are included in the LOI to allow either party to back out of the deal with specific restrictions and/or penalties. The acceptance of the LOI by the seller indicates that only that buyer is in being considered and other interested parties are no longer in the running, unless and until the LOI is void.

Financial Model

This is a model built, usually starting during Desktop Diligence and is a working document (updates / additions continuing through to final valuation and offer letter to selling business), that models how buying the company will affect your business financially. It typically includes how synergies and revenue uplift will affect the combined organization over time, as well as predictions on how current products will perform (considering that some may be sunset, combined into one product, etc.). The more that is learned during Due Diligence and the more that the two leadership teams can collaborate on ideas during that period, the more accurate this model becomes. Leadership of the acquiring company must typically commit to this model before a valuation of the target company can be completed and an offer made.

Valuation Model

Valuation is the process of determining the value or worth of a business. There are various valuation models such as Discounted Cash Flow, EBIDTA Multiple, etc. Typically, an organization’s finance team will use multiple methods to value a target business, based on all the findings from Due Diligence and from the financial model, to determine a range and then the final offer. Guidance on valuation is not included in this toolkit, as it is a very specialized area and should be handled by the finance experts in your organization or by a third party.