Mergers and Acquisitions: How to Prepare a Company for the M&A Market

Mergers and acquisitions in Portugal have long since ceased to be the exclusive domain of large corporate groups or publicly listed companies.

The need to gain scale, accelerate technological innovation and resolve generational succession challenges are just some of the decisions that lead shareholders and managers to consider buying or selling a company.

In this article, we demystify what a merger and acquisition process involves, explain the strategic decisions that may lead to the purchase or sale of a company, and outline the key considerations for closing a deal safely and without surprises. 

What does M&A (Mergers & Acquisitions) mean?

Mergers & Acquisitions (M&A) is the strategic process of inorganic growth through the consolidation of companies or their assets. Simply put, this strategy involves the purchase, sale or union of two or more companies, with the aim of turning them into a single business capable of leveraging growth and competitiveness.

Although several processes can be grouped under the same strategic umbrella, it is worth understanding the distinction between a merger, an acquisition and a joint venture:

• What is a merger? This occurs when two or more independent companies combine their legal and operational structures to create a new organisation, sharing synergies, risks and resources.
• What is an acquisition? This occurs when a company, acting as the buyer (Acquirer), acquires control or a stake in another organisation (the Acquired), integrating it fully or partially into its structure.
• What is a Joint Venture? This strategy is used when two companies work together on a specific project or objective whilst remaining independent. As a rule, a new independent company is created solely for the purposes of this partnership.

In addition to mergers and acquisitions, there are other transactions within this universe, such as the creation of spin-offs or demergers (the process of dividing an organisation into two or more companies).

What drives a company Merger or Acquisition?

The motivations behind a merger and acquisition arise from the context in which the company operates and its growth objectives for the future of the business. However, there are patterns common to the majority of M&A transactions taking place in Portugal and worldwide, such as:

• Accelerating growth: the traditional model of a company is based on organic growth, underpinned by assumptions such as increased sales, hiring more staff or entering new markets. However, this process is slow and dependent on the company's capacity to scale its resources. Inorganic growth through merger and/or acquisition is substantially faster and safer than investing for years in developing processes and/or building infrastructure when you can simply acquire a company that already possesses the know-how and consolidated infrastructure in the segment you wish to enter.
• Access to know-how and technology: scale is not always at the heart of the motivation — knowledge (know-how) often is. If a furniture assembly company wishes to internalise production but lacks the manufacturing know-how, it can acquire a joinery business that already possesses that knowledge. The same applies to a traditional technology company in need of advanced innovation that, rather than developing it internally, chooses to acquire a specialist start-up to instantly absorb its patents, technological talent and intellectual property. This is a crucial strategy in markets where speed of adaptation is a decisive factor.
• Economies of scale: two companies operating in the same sector, with the same suppliers and the same modus operandi, are synonymous with duplicated costs. It is in this scenario that a merger between these two companies allows the acquiring company to rationalise costs, improve the profitability of both operations and scale more swiftly.
• Increasing market share: through a horizontal acquisition (the purchase of a competitor operating in the same sector), the acquiring company immediately captures the customer base of the acquired company. The horizontal strategy has the dual benefit of instantly boosting market share and concentrating supply, significantly reducing competitive pressure in that region or segment.
• Business succession: in Portugal, 99% of businesses are SMEs, some of them managed by entrepreneurs approaching retirement age who have no prepared or willing family successors to secure the company's future. The sale of the organisation (whether to strategic investors or capital funds) thus emerges as a solution for business owners who wish to ensure continuity of the business, preserve jobs and maintain the legacy of what they have built.
• Risk diversification: mergers and acquisitions are frequently used as mechanisms to diversify the business, dilute risks and/or reduce concentration in a single market. Market concentration represents a significant risk for companies, making them vulnerable to external shocks and economic cycles. Diversification through acquisition allows companies to enter new markets and increase their resilience to external shocks (threats).

To materialise these growth objectives, the strategic intent translates, in practice, into different operational approaches depending on the position of the target company in the market and value chain. The most common routes adopted by organisations are the horizontal strategy, the vertical strategy or, in scenarios of greater diversification, the conglomerate strategy.

How does an M&A process work in practice?

Whilst it is neither an easy nor a quick process, a Merger or Acquisition is a strategy that, when properly planned and executed by specialist professionals, can generate revenue from day one — unlike traditional investment, where capital is deployed first and returns are only expected later.

Moving forward with an M&A transaction demands far more than a mere desire to expand the business or divest assets. It is a complex, multidisciplinary journey filled with technical, financial and legal specificities. To succeed, an M&A process must be designed and managed as a rigorously structured project, as improvisation is the primary cause of value destruction in this type of transaction.

Under the lens of Corporate Finance best practice, a transaction must progress through several stages on both the sell-side and the buy-side.

The M&A process from the seller's perspective (Sell-side)

1. Valuation (Company Valuation): the process begins with a rigorous calculation of the business's reference value. This valuation must combine three distinct perspectives: the asset-based approach, the market approach (through multiples comparison) and the income approach (Discounted Cash Flow – DCF). This report validates the base price for future negotiations.
2. Teaser and Information Memorandum: at this stage, the marketing materials are prepared. The Teaser (a blind, anonymous pitch to generate interest) and the Information Memorandum or InfoMemo (a comprehensive report containing the company's profile, strategy and detailed financial data) are drafted.
3. List of Potential Investors (Procurement): the advisory team builds a target list (long list) aligned with the characteristics of the transaction. Potential investors are mapped and prioritised between strategic investors (companies in the same sector with synergies), Venture Capital firms (Funds) and Family Offices.
4. Market Outreach and Approach: contact is initiated with selected investors through the sharing of the Teaser. Should an investor express interest, a Non-Disclosure Agreement (NDA) is signed, enabling the secure sharing of the InfoMemo and the opening of a Q&A channel.
5. Non-Binding Offers (NBO): the selling company receives and analyses the Non-Binding Offers (NBOs) submitted by investors. These preliminary proposals indicate the transaction structure, reference values and the degree of the buyer's intent, serving as the basis for responding to and selecting the best offers.
6. Memorandum of Understanding (MoU): once the ideal investor is selected, the legal teams draft a Memorandum of Understanding (MoU). This document formalises the next steps and the essential characteristics of the transaction, frequently defining an exclusivity period for the buyer to proceed to due diligence.
7. Due Diligence: a Virtual Data Room (VDR) is established, in which the selling company makes all its internal documentation available. Over the course of several weeks, the buyer's advisers conduct a thorough audit covering operational, financial, fiscal and legal matters. The seller must provide rigorous support in responding to information requests. Learn more about Due Diligence
8. SPA and Closing: with the Due Diligence validated, the terms of the Share Purchase Agreement (SPA) are carefully negotiated. The transaction culminates in the preparation of the final supporting documentation and the formal closing and financial settlement (Closing).

The M&A process from the buyer's perspective (Buy-side)

1. Identifying Target Markets: everything begins with defining the markets and sectors that are synergistic with the buyer's objectives. Potential synergies are assessed, value-creation pathways are evaluated, and the key risks that the inorganic growth strategy may entail are mapped.
2. Defining the Target Profile: the exact profile of the company to be acquired is drawn up, ensuring perfect alignment with the buyer's strategy. Strict criteria are established, such as sector of activity, desired size, financial stability and the company's position in the value chain.
3. Procurement and Shortlist: based on the defined profile, market prospecting begins to produce an initial list of companies. This list is rigorously evaluated and narrowed down to a prioritised shortlist, identifying only the genuine targets with the greatest potential for fit.
4. Target Valuation and Approach: the advisory team contacts companies on the shortlist on a blind basis (in blind) to gauge their receptiveness to a transaction. For receptive targets, a detailed valuation and analysis is carried out, culminating in a report to support the investment decision.
5. Non-Binding Offers (NBO): once the target is decided upon, the buyer proceeds with drafting and submitting a detailed NBO. This proposal sets out the intended financial framework, the proposed transaction structure and, typically, requests an exclusivity period to advance to the next stages.
6. Memorandum of Understanding (MoU): with the NBO accepted by the seller, both parties draft the Memorandum of Understanding. This preliminary document seals the principles of the agreement, organising the timetable and commitments made before time and capital are spent on audits.
7. Due Diligence: the buyer assembles its team of operational, legal and financial advisers to access the Data Room provided by the seller. This is the stage of in-depth investigation to confirm there are no hidden liabilities, resulting in comprehensive reports that underpin the security of the acquisition. Learn more about Due Diligence
8. SPA and Closing: supported by the audit reports, the buyer enters the final stage of negotiating the terms and risk allocation in the Share Purchase Agreement (SPA). Once the document is agreed and any conditions precedent are satisfied, the deal is formally signed, settled and announced to the market.

Whilst market dynamics often demand speed and agility in decision-making, the temptation to accelerate the transaction and skip stages is one of the greatest risks an organisation can take. An M&A process must invariably be treated as a rigorously structured and phased project.

Improvisation or the omission of critical phases — such as foregoing a thorough due diligence or failing to validate data during company valuation — are the primary causes of value destruction in these transactions. The success and genuine value-creation potential of a transaction depend critically on the discipline of following a well-defined strategic rationale, a rigorous valuation and a carefully planned post-merger integration. In short, scrupulously respecting each of these stages is not a mere formality, but rather the only mechanism capable of protecting your investment and ensuring that the transaction achieves its projected financial objectives.

The most common mistakes in M&A transactions

Although Mergers and Acquisitions (M&A) are now an indispensable lever for growth and corporate value creation, the complexity of these transactions is frequently underestimated. Several studies reveal that more than half of these deals fail to achieve their initial strategic objectives, resulting in well-documented cases of value destruction and significant financial losses for acquiring companies.

Whilst awareness of these pitfalls does not eliminate risks entirely, recognising them in advance is the first step towards mitigating them, exponentially increasing the likelihood of completing a successful transaction. To safeguard your investment, review the 9 main causes of failure, divided between the pre- and post-acquisition phases:

Pre-Acquisition Phase (Planning and Negotiation)

• Misalignment with the organisation's overall strategy: completing an acquisition is a significant commitment that will endure over time and may not be the most appropriate strategy in every context. The absence of a thorough assessment prior to the transaction compromises the process. The M&A thesis must always complement and derive from the company's overall growth strategy.
• Underestimating target identification: finding and selecting the right target company is a difficult and time-consuming process. Underestimating the complexity and time associated with this stage frequently leads to the selection of companies without the necessary strategic fit.
• Neglecting the human and cultural dimensions: it is a mistake not to consider, from the very outset of the assessment, the potential cultural and strategic differences between the organisations involved, ignoring the risk of resource overlap and the instability that the transaction may generate within the teams.
• Superficial Due Diligence: failing to conduct a rigorous and thorough audit process. It is essential to ensure that the financial information presented reflects reality and to analyse all possible risks and hidden liabilities that the company may bring to the various stakeholders.
• Overpaying and unrealistic synergy analysis: in many cases, the intense competitiveness of the negotiation process or excessive optimism regarding the synergies to be achieved results in an overvaluation of the asset, leading to excessive payments that cannot be made profitable.
• Inadequate financial structuring: designing a transaction based on ill-suited financing models. The high cost of debt incurred for the acquisition can strangle cash flow and make it impossible to achieve the expected returns and synergies.

Post-Acquisition Phase (Transition and Integration)

• Lack of preparation for the "Day After": undervaluing the period immediately following the signing of the contract. It is imperative to begin preparing for the day after well in advance, defining a "100-Day Plan" with an implementation roadmap and key actions to achieve the objectives and capitalise on the transaction's momentum.
• Deficiencies in post-merger integration (PMI): failing to allocate Post-Merger Integration (PMI) teams. These teams play an essential role, and their absence results in cultural clashes, poor management of expectations among the acquired company's employees, and failures in implementing the planned strategic changes.
• Absence of specialist professional support: attempting to manage a process of this technical, financial and legal complexity in isolation. It is essential to seek experienced and qualified professional support to mitigate risks throughout all stages.

How to prepare a company for an M&A transaction?

How to prepare a company for sale?

Selling a company is often viewed as the culmination of years of work and wealth-building. Whether for reasons of family succession, attracting capital or portfolio restructuring, this process demands from managers a great deal of organisation, emotional intelligence and, above all, considerable patience.

In practice, the risks of asset devaluation are very high. Companies that come to market with disorganised finances, excessive dependence on founder figures or unrealistic price expectations will invariably deter qualified investors or suffer aggressive price reductions during due diligence.

To mitigate these risks and ensure the maximisation of transaction value, the preparation phase (the Sell-Side process) must focus on consolidating three fundamental pillars, well before any investor is approached:

1. Financial, Legal and Operational "Housekeeping": transparency is the greatest generator of confidence in a transaction. Preparation requires a "thorough house-clearing", involving the engagement of auditors and consultants to organise and regularise all financial statements. It is imperative to audit strategic contracts with clients and suppliers and to immediately resolve any tax, legal or employment contingencies. A company with robust, transparent processes instils confidence and mitigates the risk of the deal falling through at the due diligence stage.
2. Reducing dependency and professionalising management: a buyer will shy away from organisations whose success is exclusively centred on a single leader. Preparing for a sale requires an effort to professionalise management, clearly separating the family sphere from the business and implementing good corporate governance practices. It is essential to align incentives to retain key talent and executives, demonstrating to the market that the company has a professional structure capable of operating entirely autonomously following the departure of the current shareholders.
3. Conducting a defensible valuation and organising documentation: going to market with a business value based on intuition is not acceptable. A strictly professional company valuation (Valuation) must be carried out to technically and unquestionably substantiate the asking price in negotiations. Simultaneously, the investor presentation documentation must be prepared: a Teaser and Information Memorandum designed with the rigour demanded by the financial market to generate interest, without ever compromising brand confidentiality.

The sale process demands a level of internal audit and strategic planning just as rigorous as the final contract negotiations themselves. Aligning these three pillars is crucial for managers to gain the confidence and security needed to defend the value of their company and to prevent stress and the eagerness to close the transaction from diminishing its worth.

How to prepare a company for an acquisition?

Acquiring a company is the fastest and most effective route to accelerating inorganic growth, dominating new markets, diversifying risk or acquiring technological innovation. However, as with selling, this process demands enormous strategic discipline from management teams, analytical composure and the ability to resist "deal fever".

In practice, the risks of value destruction are extremely high. Organisations that enter the market without a clear investment thesis, driven by impulse or competitive pressure, will invariably embark on a lengthy and costly process with the wrong company. Worse still, they risk committing the classic mistake of overpaying, assuming an excessive premium that the new structure will never be able to make profitable.

To mitigate these risks and ensure that the acquisition generates a real and sustainable return, the preparation phase (the Buy-Side process) must focus on consolidating three fundamental pillars, well before any formal offer is submitted:

1. Pre-Deal market study and target screening: the purchase must not be reactive, but rather the result of a structured search. Preparation requires an exhaustive mapping of the market to identify, analyse and prioritise various alternatives (the "targets"). It is imperative to define strict initial screening criteria — such as size, sector, location and cultural alignment — to immediately eliminate candidates that do not have genuine complementarity with your organisation's long-term strategy.
2. Financial capacity assessment and realistic valuation: before negotiating the value of a third party, the buyer must know its own limits. This involves assessing the company's borrowing capacity in advance, structuring sources of financing and, fundamentally, projecting a Valuation calculation (such as a Discounted Cash Flow) based on realistic assumptions. Having pre-defined maximum price limits protects management from overvaluing potential synergies under the tension and stress of the negotiation process.
3. Preparation for Due Diligence and integration: buying requires the capacity to investigate thoroughly and integrate swiftly. As soon as the preliminary offer is accepted, the acquiring company should already have assembled multidisciplinary teams (or external advisers) to conduct a rigorous audit validating financial, legal, employment and technological liabilities. Simultaneously, the buyer should begin designing, from the preparation phase, the future governance strategy and the Post-Merger Integration (PMI) Plan, ensuring it will be able to retain key talent and implement synergies from "Day 1".

Acquiring a company demands the same level of analytical rigour and planning as preparing a company for sale. Aligning these three pillars is crucial for managers to gain the objectivity needed to proceed only with deals that create genuine value, ensuring the security and resolve to walk away from the negotiating table whenever the detected risks outweigh the benefits.

How to prepare a company for a Joint Venture?

Whilst a Joint Venture (JV) may appear, at first glance, to be a highly attractive growth strategy — delivering results more quickly than building a business from scratch and presenting fewer logistical challenges than an acquisition — preparing for this type of partnership is extremely demanding. In practice, the risks of misalignment are very high. Alliances that proceed with unharmonised strategic objectives, unclear governance, indistinct workforce strategies, distorted operating models and serious cultural incompatibilities will invariably underperform against expectations.

To mitigate these risks and ensure that the strategic partnership generates the projected value, the preparation phase must focus on consolidating three fundamental pillars before any agreement is signed:

1. Structuring Governance and Decision Rights: the legal independence of the companies in a JV is its greatest advantage, but also its "Achilles' heel". Preparation requires meticulous design of the future operating model. It is imperative to establish a clear governance model that defines precisely who holds decision rights in each area, how the hierarchy of the joint project is structured and what mechanisms exist for resolving deadlocks or disputes. Without this, decision-making becomes paralysed.
2. Cultural Harmonisation from Day 1: culture cannot be an afterthought. Preparing for a JV involves mapping and identifying the cultural risks of both organisations in relation to the transaction's objectives. A strategy for integration and an operating environment must be built that respects the core identities whilst creating a unified project culture. Ignoring this step generates daily friction between the teams of both companies.
3. Workforce Strategy Alignment: in a Joint Venture, employees from different companies work towards a common objective. Preparation requires a clear determination of the critical roles and talent needed to drive the alliance's success. It is essential to define workforce strategies that address skills gaps and, wherever possible, harmonise incentives and compensation models, ensuring that the talent allocated to the operation is pulling in the same direction.

Preparing a company for a Joint Venture demands the same level of rigour, audit and organisational planning as a traditional M&A transaction. Only with the company aligned across these three dimensions is it possible to derive the true financial and strategic benefit of this alliance.

The importance of Post-Merger Integration

The signing of the sale and purchase agreement (closing) is frequently celebrated by shareholders and investors as the great finishing line of an exhausting negotiation marathon. However, for executive management teams, this is merely "Day 1". The vast majority of transactions have exemplary financial and strategic models on paper, but it is in the operational arena, during the integration phase, that the true value of the deal is won or lost.

In practice, M&A failures occur predominantly at this stage. When integration proceeds without a rigorous script, priorities come into conflict, decision-making stalls and teams tend to revert to previous ways of working under the pressure of the moment. Cultural clashes, unclear leadership and ineffective communication invariably result in the departure of key talent to competitors and the destruction of the synergies that motivated and justified the initial investment.

To mitigate this significant execution risk and ensure that the transaction delivers the promised financial return, the Post-Merger Integration (PMI) process must be treated as a critical operational discipline, grounded in three non-negotiable pillars:

• The "100-Day Plan" and Operational Continuity: integration planning cannot begin only after the signatures are in place — it must be initiated well before the formal closing of the deal. This tactical plan defines the priority actions for the first months, focusing on ensuring the stabilisation of daily operations and the implementation of quick wins. It is vital to ensure effective change management and proactive communication with all stakeholders (employees, clients and suppliers) to eliminate rumours, manage expectations and build confidence in the new structure.
• Cultural Harmonisation and Talent Retention: organisational culture cannot be a mere afterthought, as it is where most mergers fail. It is imperative to map the differences between the two entities in good time and to design a clear governance model, immediately defining who leads, who reports to whom and how the new workflows are structured. In parallel, it is crucial to identify the key executives and talent within the acquired company, actively aligning their incentives to prevent the loss of the know-how that ensures the long-term viability of the business.
• Synergy Capture and Value Creation Plan: inorganic growth only fulfils its purpose when the union of the companies generates value substantially greater than the sum of the individual parts. This requires the execution of a rigorous plan to effectively capture operational synergies such as, for example, the consolidation of back-office departments, the harmonisation of IT systems and technology platforms, and the implementation of cross-selling strategies between the different customer bases. The ultimate objective is to translate the integration into a sustained improvement in profitability indicators (EBITDA).

In summary, Post-Merger Integration is the ultimate test of an organisation's resilience and capacity for execution. Mastering these three pillars is what enables a company to transform a complex transaction into a genuine lever of competitive advantage, demonstrating to the market that the transaction was, in fact, a strategic success and not merely a financial one.

The importance of specialist advisory in an M&A process

Conducting an M&A transaction (whether on the buy or sell side) is undoubtedly one of the most complex financial and strategic journeys in the life of an organisation. However, attempting to manage this process internally, in isolation, is one of the greatest and most dangerous mistakes a management team can make.

In practice, diverting the board's focus to lead intensive negotiations puts daily operations at risk at a critical juncture for the company's results. Furthermore, a lack of awareness of the unwritten rules and dynamics of the financial market leaves business owners vulnerable to unfair valuations, unsuitable investors and poorly structured contracts.

To mitigate these risks and ensure maximum transaction security, the involvement of a specialist Corporate Finance advisory team acts as a protective shield for your assets, underpinned by five central pillars:

• Impartial and unbiased valuation: in corporate transactions, emotional attachment to the business or "acquisition fever" can easily cloud managers' judgement. A specialist team ensures the delivery of a wholly impartial and defensible valuation, supported by established technical methodologies (such as Discounted Cash Flow and Market Multiples). This eliminates intuition and gives you the certainty that you are negotiating the company at its fair value, armed with irrefutable data.
• Market knowledge and access to investors: more than just analysing numbers, an experienced advisory firm possesses an extensive and well-established network of international contacts. It has direct access to those with the genuine capacity and strategy to invest — such as private equity funds, family offices and global industrial partners — connecting your business to the right players that the closed market would rarely reveal.
• Negotiation defence: M&A negotiation is intense, protracted and often generates considerable strain between the parties. The adviser acts as a strategic "buffer", absorbing pressure and unflinchingly defending your financial interests. It is this protection that ensures the optimisation of the final price and the structured negotiation of mechanisms such as Earn-outs and Escrow accounts, maximising your proceeds and minimising concessions.
• Legal protection: working in close coordination with legal advisers, the financial team ensures that all due diligence findings are correctly reflected in the Share Purchase Agreement (SPA). This protection ensures that the representations and warranties given are fair, shielding your organisation against future tax, employment or hidden liabilities.
• Confidentiality and discretion: a leak of information about a potential sale or merger can destabilise clients and suppliers and trigger the departure of key talent to competitors. Advisers prepare blind marketing documentation (Teasers) and conduct market outreach under the protection of strict Non-Disclosure Agreements (NDAs). This absolute rigour ensures that your transaction proceeds with complete discretion, preserving the brand's reputation from the first to the last day.

In summary, a specialist team does not act as a mere intermediary, but rather as a fundamental strategic partner. Engaging the expertise of an advisory firm allows your management team to remain entirely focused on the day-to-day running of the company, with the peace of mind and security of knowing that the transaction is being led by professionals who know the market and unconditionally protect your value.