Corporate mergers and acquisitions can vary considerably in the time they take to be completed. This length of time may span from six months to several years. There are a number of individual steps that need to be completed successfully by two public companies before they are legally combined into a single entity. Companies usually work with an investment bank to manage the merger process, which includes approvals, documentation, and implementation.
As companies go through the merger process, the merger timeline is often an important headline of communication. Executives will typically discuss merger details and field ongoing questions from analysts in quarterly earnings reports. Checkpoints, deadlines, and timelines can all be revised as the process is ongoing. Regulatory due diligence across the globe for worldwide conglomerates can turn up any number of idiosyncrasies that may lengthen the time to full approval.
In essence, the merger period begins when a company decides to buy another company. A firm will determine why a merger is beneficial to its business and what positive elements it will derive from acquiring another company. This will require a deep evaluation of its own business as well.
It will perform an analysis of its industry, who are its competitors, what are the barriers to further growth, the manner in which the supply chain operates, and many other factors. The firm will need to assess its strengths and weaknesses to determine where the gaps in its operations are and how these gaps can be filled by an acquisition. In assessing these areas, an acquiring firm will be able to determine what it needs from a merger: increased revenues, cost reductions, market dominance, technology improvements, or any other beneficial synergies.
Once an acquiring company determines its need for a merger, searches for target companies, decides on a company that will be a good fit, and values that company, the entire merger process officially starts with an offer made by one company to another.
Both companies will usually be involved in closed-door discussions about the proposed merger, and agreements may be made after the first offer but usually negotiations will involve several offers and continued discussions that may last for months.
Once the offer has been accepted, the due diligence period begins. This is a long and detailed process whereby the acquiring company analyzes every aspect of the target firm. This covers all financial aspects, from balance sheets to ratios, employees, customers, supply chains, market share, operational procedures, and more. This study of the target company helps the acquirer confirm or adjust the value of the target company and discover any potential problems with the business it is acquiring.
Once an agreement between two companies is reached, and the due diligence finalized, both companies will decide on the final type of sale. The companies will determine if a sale will be made through the purchase of assets or through the purchase of stock. The acquirer will then finalize its financing arrangement for the purchase.
The final details of a merger proposal are specified in corporate communications and distributed to the shareholders of both companies. Announcements and communications of a merger also include details of shareholders’ votes, which typically occurs at either a special meeting or the company’s annual shareholder meeting. Assuming the required votes are obtained from both sides, the merger then moves to the regulatory approval phase.
In many cases, amiable merger offers usually move somewhat quickly through the corporate communication phase but may be slowed for months or years in the regulatory approval phase. Generally, the amount of time required for regulatory approval will depend on the scope and size of a company’s operations.
Companies that operate in multiple geographies must obtain regulatory approval from each nation’s government. The more countries of operation the longer and more tedious this process can be. Domestically in the U.S., government regulators will closely scrutinize the competitive aspects of the merger in addition to the operational variables. In some cases, companies may be required to integrate certain provisions mandated by the government before approval can be achieved. This can include divestitures in certain areas of combined businesses where monopolistic attributes may be identified to abide by antitrust laws.
The Bottom Line
In general, synergies are typically expected from a corporate merger which results from the combination of key business areas and the reduction of costs. These combinations and synergies are what create the greatest need for corporate analysis and deep due diligence.
The different variables involved in each individual merger scenario are also the driving factors in the total amount of time it takes for a merger to be completed from introduction to final comprehensive approval. Market estimates place a merger's timeframe for completion between six months to several years. In some instances, it may take only a few months to finalize the entire merger process. However, if there is a broad range of variables and approval hurdles, the merger process can be elongated to a much longer period.