What is M&A Advisory?
M&A Advisory services are provided by investment banks hired to guide corporations through the complex world of mergers and acquisitions.
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Investment Banking M&A Advisory Services
In the 1990’s, M&A advisory became an increasingly profitable line of business for investment banks because of much corporate consolidation.
M&A is a cyclical business badly hurt during the financial crisis of 2008-2009, but rebounded in 2010, only to dip again in 2011.
In any event, M&A will likely continue to be an important focus for investment banks. JP Morgan, Goldman Sachs, Morgan Stanley, Credit Suisse, BofA/Merrill Lynch, and Citigroup are generally recognized leaders in M&A advisory and are usually ranked high in M&A deal volume.
The scope of the M&A advisory services offered by investment banks usually relates to various aspects of the acquisition and sale of companies and assets, such as business valuation, negotiation, pricing and structuring of transactions, as well as procedure and implementation.
One of the most common analyses performed is the accretion/dilution analysis, while an understanding of M&A accounting, for which the rules have changed significantly over the last decade is critical. Investment banks also provide “fairness opinions” – documents attesting to the fairness of a transaction.
Sometimes firms interested in M&A advice will approach an investment bank directly with a transaction in mind, while many times investment banks will pitch ideas to potential clients.
Learn More → Investment Banking Primer
How Does M&A Advisory Work?
First, we’ll begin with some basic terminology:
- Sell-Side M&A: When an investment bank is an advisor to a potential seller (target), this is called a sell-side engagement.
- Buy-Side M&A: Conversely, when an investment bank acts as an advisor to the buyer (acquirer), this is called a buy-side assignment.
Other services include advising clients on joint ventures, hostile takeovers, buyouts, and takeover defense.
What is the M&A Due Diligence Process?
When investment banks advise a buyer (acquirer) on a potential acquisition, they also often help to perform what’s called due diligence to minimize risk and exposure to an acquiring company, and focuses on a target’s true financial picture.
Due diligence basically involves gathering, analyzing and interpreting the target’s financial information, analyzing historical and projected financial results, evaluating potential synergies and assessing operations to identify opportunities and areas of concern.
Thorough due diligence enhances the probability of success by providing risk-based investigative analysis and other intelligence that helps a buyer identify risks – and benefits – throughout the transaction.
For several years, the JP Morgan M&A reference manual found its way to every analyst cubicle on Wall Street.
Given significant changes in the accounting rules and overall M&A landscape since the publication of the “M&A Bible”, it is no longer a useful guide for current M&A professionals.
That said, if someone were to build a museum on investment banking, this handbook would surely belong.
Fill out the form below to access the PDF file, but please note that certain portions of the material is outdated.
M&A Timeline: Merger Process Example
Week 1-4: Strategic Assessment of Possible Transaction
- The Investment Bank will identify potential merger partners and confidentially contact them to discuss the transaction.
- As potential partners respond, the Investment Bank will meet with potential partners to determine if the transaction makes sense.
- Follow-up management meetings with serious potential partners to establish terms
Weeks 5-6: Negotiation and Documentation
- Negotiate Definitive Merger and Reorganization Agreement
- Negotiate Pro Forma Composition of Board of Directors and Management
- Negotiate Employment Agreements, as required
- Ensure Transaction Meets Requirements for a Tax-Free Reorganization
- Prepare Legal Documentation Reflecting the Results of Negotiations
Week 7: Board of Directors Approval
- The Client’s and Merger Partner’s Board of Directors Meet to approve the transaction, while the Investment Bank (and the investment bank advising the Merger Partner) both deliver a Fairness Opinion attesting to the “fairness” of the transaction (i.e., nobody overpaid or underpaid, the deal is fair).
- All definitive agreements are signed.
Weeks 8-20: Shareholder Disclosure and Regulatory Filings
- Both companies prepare and file appropriate documents (Registration Statement: S-4) and schedule shareholder meetings.
- Prepare filings in accordance with antitrust laws (HSR) and begin preparing integration plans.
Week 21: Shareholder Approval
- Both companies hold formal shareholder meetings to approve the transaction.
Weeks 22-24: Closing
- Close merger and reorganization (and share issuance effect)
