5 Stage Model of merger and acquisition process

The 5 Stage Model of Merger and Acquisition Process

A merger is a very complex process and the success of an acquisition deal depends upon many internal and external factors. Unless proper care is taken, one may not be able to achieve value creation. Considering the complexities, in the book named “Creating Value from Mergers and Acquisitions: The Challenges”, the author Sudi Sudarsanam develops a 5 stage model of the Merger and Acquisition process. He uses economics, finance, strategy, legal, and organizational theories to develop a five-stage model, emphasizing the need of understanding how these stages are interconnected.

In this blog, we have tried to discuss the activities involved in this 5 Stage Model of the Merger and Acquisition process.

5 Stage Model of Merger and Acquisition Process (The stages)

As per this model, the stages in the M&A process are as follows:

Stage 1: Corporate strategy evolution

The first step is to evolve an effective corporate strategy for the merger.

An M&A strategy can assist in setting clear expectations for all parties involved. While each merger transaction is different, any strategy should cover what your organization intends to achieve with the transaction and how it plans to get there.

The strategy should be such that it clearly defines how you plan to optimize the portfolios of your businesses so that the larger interests of all stakeholders can be served.

Stage 2: Organizing for acquisition

A prerequisite for a successful acquisition is that the acquiring company must organize itself for the proposed merger. It should develop a framework for effective management of the M&A activity so that it knows beforehand all the important aspects.

Legal teams must search for and evaluate possible target companies during this phase.

If you are considering a general merger, for example, you will need to identify the target. Similarly, both the target and the subsidiary must be identified in a triangular merger. One must understand who the subsidiaries are, what industries they operate in, and where they are located. It is also critical to determine whether they are qualified to conduct business in other states and nations.

Stage 3: Deal structuring and negotiation

Once the entities have been identified, the next stage is to determine whether they are in good standing and in compliance with all statutory & legislative requirements. Otherwise, it could be a deal breaker.

Further, to appropriately value and determine the viability of the target firm in accordance with the M&A strategy plan, the legal teams require as much information as possible about the operations, customers, financials, products, etc. of the target company.

Once the target company’s valuation models have been created, the acquiring firm can propose an offer and proceed to the negotiating phase, where the terms of the deal are discussed in more detail.

In addition, this stage also involves conducting due diligence.

Due diligence is typically the most time-consuming and important element of any M&A transaction. Due diligence for M&A transactions necessitates a thorough inspection and analysis of the target company from both internal and external sources. This assists in verifying the target company’s value and identifying its liabilities.

After due diligence is completed, the parties make the final decision on whether to proceed with the transaction.

Stage 4: Post-acquisition integration

The goal of this critical step is to make the merged organization operational so that the strategic value expectations that triggered the merger in the first place can be met.

The integration of two firms requires more than merely making structural adjustments and establishing a new hierarchy of authority. It involves the integration of processes, systems, strategies, and reporting systems, among other things. Above all, it entails integrating employees and modifying the organizational culture of the two organizations, potentially leading to the development of a new hybrid culture.

Further, managing the integration of the acquired company is a full-time job that should be regarded as such. Both sides must collaborate to guarantee a smooth integration. It also entails entity planning and compliance work in the concerned localities. Some related tasks involved include governance structure changes, entity set-up, consolidations, or local entity management, annual filings, registered agent/address services, and more.

A detailed integration plan should be developed, including how the target will be managed and integrated, as well as how and when the value from the deal would be captured.

The management programme of both the target firm and the acquiring firm should be changed to accommodate the co-existence of each of the two firms.

Stage 5: Post-acquisition audit and organizational learning

Once the merger is complete, it is critical to regularly monitor the success of the newly constituted entity with ongoing financial standing and health checks to ensure that there are no compliance issues.

Moreover, emphasis should be placed on overall organizational learning.


M&A transactions occur quite often. Sometimes they are friendly, while sometimes they are hostile. They assist businesses in growing inside their current industry as well as expanding into new markets. Depending on the complexity and scale of the proposed merger, the M&A transaction process can be lengthy or short. The time frame may also be affected by the regulatory or statutory clearances that are required.

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