What Are Mergers and Acquisitions (M&A): Which Stages Make Up the Process

What Are Mergers and Acquisitions (M&A)

Companies can follow different paths to reach their growth targets. For companies that want to enter a new market, broaden their product range, acquire technology or expertise, or gain scale, one of these paths is to come together with another company. Mergers and Acquisitions refer to two or more companies combining under a single structure, or one company purchasing control of another. In international practice, these transactions are known by the abbreviation M&A.

Mergers and Acquisitions are not only a matter for large holding groups. Mid-sized companies, family businesses and ventures seeking growth capital can often be parties to these processes as well. A family business taking on a new shareholder during a generational transition, a manufacturer acquiring its supplier, or a foreign investor becoming a shareholder in a company in Türkiye are all transactions considered within the scope of Mergers and Acquisitions.

This article explains what the concept of Mergers and Acquisitions means, the types these transactions take, the stages that make up the process and the preparations companies can make before entering it. It aims to offer a general framework for shareholders and executives who are considering a sale, an acquisition or a partnership process.

Key Concepts and Transaction Types: What Mergers and Acquisitions Mean

The term Mergers and Acquisitions describes two different types of transaction together. A merger is the combination of the legal entities of two or more companies under a single company. Under the Turkish Commercial Code, a merger can take place through one company absorbing another or through the companies combining under a new company. In a merger, the shareholders of the parties hold a defined share in the structure that emerges after the merger.

An acquisition is the purchase by a company or an investor of another company's shares or assets in order to obtain control of that company. Acquisitions are often structured as share deals or asset deals. In a share deal, the buyer purchases the shares of the target company from the existing shareholders, and the company continues its operations while keeping its legal entity. In an asset deal, the buyer purchases certain assets, business units or the commercial enterprise of the company. The structure chosen is determined by taking into account matters such as tax, liability and transaction timing.

Mergers and Acquisitions can also be classified according to the relationship between the parties' fields of activity. Transactions between companies operating in the same sector are called horizontal mergers and are often carried out with the aim of gaining scale and market share. Transactions between companies at different links of the supply chain are called vertical mergers and offer the opportunity to control costs and secure supply. Transactions between companies operating in different sectors may be carried out for diversification.

The parties to the transaction are also among the factors that shape the structure of the process. The buyer may be a strategic investor operating in the same sector, or a private equity fund that becomes a shareholder for a defined period. Strategic investors often focus on operational fit and long-term growth opportunities. Financial investors give priority to the company's potential for value creation and to the exit plan that will take place after a certain period. Getting to know these investor profiles helps the selling side lay the right groundwork for discussions at the start of the process.

The purpose of Mergers and Acquisitions transactions can differ from company to company. Some companies aim to expand into new geographies, while others aim to acquire a new technology or product group. Some shareholders wishing to leave the company, the planning of a generational transition in family businesses, or the company's need for growth capital can also bring these transactions onto the agenda. Defining the purpose clearly at the start of the process guides the decisions to be taken at later stages.

From Preparation to Closing: Which Stages Make Up the Mergers and Acquisitions Process

The Mergers and Acquisitions process often runs on a timeline ranging from a few months to more than a year. The length of the process can vary depending on the size of the transaction, the parties' level of preparation, the structure of the target company and the required regulatory approvals. Even so, most transactions follow a similar sequence of stages. When the parties know this sequence from the outset, the process can be managed in a planned way.

The main stages of the Mergers and Acquisitions process are often set out as follows:

→  Strategy and preparation: The purpose of the transaction, the target profile and the parties' expectations are defined.

→  Target screening and first contact: Suitable buyers or target companies are identified, and initial meetings are held under a confidentiality agreement.

→  Preliminary valuation and letter of intent: The company's value range is calculated, and the key commercial terms are summarised in a letter of intent.

→  Due diligence: The financial, tax, legal and operational structure of the target company is examined in detail.

→  Contract negotiation: The share purchase agreement, the price mechanism, representations and warranties, and payment terms are finalised.

→  Approvals and closing: Required approvals are obtained from authorities such as the Turkish Competition Authority, payment is made and the shares are transferred.

→  Integration: After the transaction, the finance, operations and human resources processes of the two structures are brought together.

The strategy and preparation stage shapes the rest of the process. At this stage, the selling side determines the conditions under which the company is open to a sale or partnership, the share it is considering transferring and the role it wishes to take in management after the transaction. The buying side defines its acquisition goals, its budget and the qualities it is looking for in a target company. Organising the company's financial statements, compiling its contracts and addressing likely questions in advance during preparation can save time at later stages.

At the target screening and first contact stage, the parties get to know each other. The selling side usually prepares a short teaser introducing the company. After a confidentiality agreement is signed with interested buyers, a detailed information memorandum is shared. This document summarises the company's field of activity, market position, financial performance and growth opportunities. Initial meetings allow the parties to understand each other's expectations and to make a preliminary assessment of whether the transaction will move forward.

At the preliminary valuation and letter of intent stage, a range is set for the company's value. Valuation work may use methods such as discounted cash flow, comparable company multiples and precedent transaction multiples. When the parties agree on the value range and the key commercial terms, a letter of intent is signed. The letter of intent is often prepared as a non-binding document. Even so, certain provisions such as confidentiality and exclusivity may be binding on the parties.

The due diligence stage is one of the most extensive pieces of work in the process. The buyer, together with its advisers, examines the target company's financial statements, tax returns, contracts, workforce structure, assets and potential liabilities in detail. Financial due diligence sets out the sustainable level of the company's reported profitability, its working capital needs and its net debt position. When the selling side enters this stage with an organised data room and prepared answers, the process can move forward smoothly. A financial check-up carried out before the sale can help the company enter this stage well prepared. You can review the scope of this work on the page for our financial check-up model.

At the contract negotiation stage, the findings of due diligence are reflected in the contract terms. How the purchase price will be adjusted according to net debt and working capital at the closing date, whether part of the payment will be tied to future performance, and the seller's representations about the company are finalised at this stage. Once the contracts are signed, the required approvals are obtained. Transactions above certain thresholds may require approval from the Turkish Competition Authority. In some sectors, approval from the relevant regulatory authorities may also be needed. Once the approvals are complete, payment is made and the shares are transferred to the buyer, closing the transaction.

After closing, the integration stage begins. At this stage, the two companies' accounting systems, reporting structures, financing arrangements and management processes are brought together. Delivering the benefits targeted by the transaction depends to a large extent on running this stage in a planned way. Preparing the integration plan before closing ensures that responsibilities and priorities are clear from day one.

During integration, the finance function is often among the priority areas. In the first months, a shared reporting calendar is set up, charts of accounts are aligned and cash management begins to be tracked within a single structure. The content and frequency of the reports to be presented to the board and to the new shareholders are also set during this period. Tracking the synergy targets set during the transaction in a separate table helps shareholders see periodically to what extent these targets are being achieved.

Preparation and Advisory: What Companies Focus On in the Mergers and Acquisitions Process

The Mergers and Acquisitions process also gives companies an opportunity to review their own structures. A company preparing for a sale or partnership can use this process to organise its financial reporting, contract management and corporate governance structure. These improvements contribute to the company's management quality even if the transaction does not take place. Starting preparation a few months or a year before the transaction allows the matters that support the company's value to be addressed in good time.

Financial preparation is one of the core topics of this process. Audited financial statements, regular monthly management reports and a consistent budget history make it easier for the buyer to evaluate the company. Separating transactions with shareholders, related-party balances and one-off income and expenses in advance creates a clear basis for valuation discussions. We discussed the approach to presenting financial information in an orderly structure in our article on reports presented to the board.

Corporate governance is also among the areas that buyers evaluate carefully. The structure of the board, written decision-making processes, the internal control framework and the allocation of authority offer important information about how the company will be managed after the transaction. In family businesses in particular, putting relations between shareholders and management responsibilities in writing can help build the investor's confidence in the company. The presence of independent board members is also often seen by investors as a positive indicator.

Managing the process runs in parallel with the company's day-to-day operations. Shareholders and senior executives take part in transaction discussions while keeping the company's ordinary business running. A strong finance function during this period ensures that due diligence requests are answered on time and that the company's performance is maintained. Having a CFO-level finance executive manage the process helps information flow from a single point and in a consistent way. You can review what CFO support covers in our article on the scope of CFO Services.

Forming the advisory team is another important step in the Mergers and Acquisitions process. The financial adviser provides support in valuation, buyer or target screening and negotiation. The legal adviser prepares the contracts and carries out legal due diligence. The tax adviser assesses the tax effects of the transaction structure. Having advisers work together from the start of the process prevents loss of information between stages and helps the timeline progress as planned.

Cross-border transactions can create a distinct area of opportunity for companies in Türkiye. Foreign investors may show interest in Türkiye's production capacity, geographical position and access to regional markets. In such transactions, preparing financial reporting in line with international standards, establishing a multilingual communication structure and taking into account the requirements of different legal systems become important. As the Türkiye partner of Valtus Alliance, NT Finans Partners brings international executive experience to companies in Türkiye in cross-border transactions.

In conclusion, Mergers and Acquisitions form a comprehensive process that offers companies opportunities for growth, for reshaping their shareholding structure and for entering new markets. Knowing the stages of the process from the outset, completing financial and corporate preparation in good time and working with an experienced team lay the groundwork for the transaction to reach its intended results.

At NT Finans Partners, we stand by your company in Mergers and Acquisitions processes, from preparation to valuation and due diligence, and from the contract process to post-closing integration. To plan your sale, acquisition or partnership process, you can get in touch with us.