by Kayle Paustian, airCFO Manager of Financial Advisory

In the earlier stages of any startup, founders are focused on building a solid team, creating healthy cash flow, and hitting key performance metrics consistently, such as customer acquisition and churn rate.  
Once this has been achieved, founders often consider next steps for growth, including: 

  • Continue to run the business profitably
  • Raise more capital 
  • Pursue mergers and acquisitions (M&A) options 

Once these have been achieved, founders have three common options: 

  • Continue to run the business profitably
  • Raise more capital 
  • Pursue mergers and acquisitions (M&A) options 

Mergers – combining forces with another company to create a new, joint organization – are often the most effective way to acquire new competencies and resources, saving you time and money, and giving access to new market opportunities.  

Acquisitions – the takeover of an entity by another – is another path to sell and start something new – or buy and continue to build. 

Going through a merger or acquisition is exciting and terrifying for many founders.  At airCFO, we shepherd many of our clients through M&A offers, helping them avoid rookie mistakes and common pitfalls. 

In this article, we outline the seven key steps to a successful M&A deal. 

#1 – Investment Teaser

A firm seeking to be purchased will often find their acquirer through an auction process. A common tool for this process is the investment teaser – a one or two-slide summary of your company used to introduce your company to strategic or financial buyers.  Teasers are often “blind”, meaning the company name is not revealed.

Some of the info commonly shared in teasers include: 

  • Investment highlights and the company’s unique selling points 
  • Company overview 
  • Customer overview 
  • Product and/or sales mix 
  • Financial summary, including EBITDA, revenue, profit margin, forecast, and so on

#2 – Non-Disclosure Agreement (NDA)

Once a company has interested parties, those parties will sign an NDA and the company name will be disclosed.  

The NDA commonly includes: 

  • The period of time the NDA covers 
  • The jurisdiction of governing law for the NDA 
  • An outline of what is considered confidential information
  • The penalties in the event of a breach

# 3 – Confidential Information Memorandum (CIM) 

Once the NDA is signed, it’s time for preliminary due diligence. In this step, the seller creates a confidential information memorandum (CIM) – a folder of more detailed information for the potential buyer, including:

  • The company overview and history, including team and ownership  
  • A description of the company’s product offerings, business segments, and target markets 
  • An overview of competitors and unique value   
  • A brief history of key metrics, including historical financial trends, profitability, and financial projections 
  • Facilities and equipment
  • Customers and suppliers
  • Production or services process
  • Intangible assets (intellectual property, R&D, etc.) 
  • Technological capabilities 

A CIM should aim to provide enough information to enable an assessment of the risk/reward profile of the acquisition target – but not a complete picture. The goal is to give just enough of the right information to entice potential acquirers to offer a non-binding EOI and move forward in the process.

#4 – Expression of Interest (EOI) 

An expression of interest (EOI) is a non-binding letter that highlights key terms of an agreement, including:

  • The initial purchase price and any other considerations that the acquiring firm is making
  • Key assumptions that are made to reach that price
  • The required due diligence to complete the deal
  • The projected timeline for deal closure and any required authorizations
  • Any other relevant information that is necessary for the deal to close

The purpose of an EOI is to screen out non-serious buyers and enable those who are serious about distinguishing themselves.

#5 – Detailed Diligence & Management Meetings 

Once you receive EOIs from serious suitors, it’s time for due diligence.  Due diligence allows both sides to understand synergies and identify information gaps or issues. In this stage, the seller provides access to a data room – a physical location established by the seller to host and share the essential documents that are required during an M&A transaction.  This commonly includes documents such as detailed historical financial statements, material contracts, company policies, strategic planning documents, and any other salient information during this stage. 

Potential buyers and their relevant representatives, such as their attorneys, can access the data room as they seek to build a clear picture of the seller/acquirer, including understanding the risks they are facing. This stage is also where site tours and management team meetings occur.

After going through diligence, the buyer/acquirer should be to the point where they can make a formal offer, usually in the form of an LOI.

#6 – Letter of Intent (LOI) 

Once due diligence is completed, the next step is for both parties to sign a letter of intent (LOI).  As the name implies, the LOI is a written document that outlines the intentions of both the buyer and the seller with regards to the merger or acquisition. 

LOIs are typically non-binding and will include the proposed purchase price. This is often the final step before you will begin negotiating exclusively with one potential acquirer and provides you with a clear roadmap to closing the deal. 

An LOI commonly includes: 

  • The structure of the merger or acquisition 
  • The purchase price 
  • Key closing conditions, including working capital requirements
  • The timeline and key terms to the deal

# 7 – Exclusivity, Binding Offer, and Close

Once the LOI is accepted, it’s time for the final negotiations.  This kicks off with a period of exclusivity, where the buyer (or investor) and seller agree to only talk to that one party and switch off conversations with any other potential buyers or sellers. 

This period is normally between 30 and 90 days, and provides the potential acquirer with time to arrange funding, create any legal entities for appropriate tax planning, and complete any outstanding due diligence before settling on a definitive purchase agreement. A motivated buyer may push to get a deal done in a shorter period of time.

Once this stage is completed, the seller creates a binding offer. A binding offer is a formal agreement made by the bidder to acquire the target company. If both parties choose to sign, the final step is to sign a purchase agreement. Once the binding offer is signed, the deal is closed, and it’s time to celebrate!  

So there you have it – the seven key steps to a successful M&A deal. 

Are you considering a merger or acquisition for your company? If so, please reach out and we’ll connect you to our finance team for assistance!


Author Note: Kayle serves as a Financial Advisory Manager at airCFO. He has a background as a fractional CFO working with multiple startups prior to joining our team. He brings a wealth of knowledge ranging from financial modeling to M&A.