Mergers and acquisitions (M&A) are often viable solutions for business owners. Both terms refer to two businesses being combined into one entity; however, each process is different. In a merger, two companies decide to merge into one entity. In an acquisition, one company takes over and absorbs the other. Insurance mergers and acquisitions are not uncommon. Typically, larger companies acquire smaller offices, or multiple offices merge to become one larger business.
There are a lot of factors to consider if you want to have your insurance agency acquired by a larger company. A key one is how long it will take. How long does a merger and acquisition take, exactly? The process may vary slightly depending on individual circumstances and differences. Below is a breakdown of the major components of the acquisition timeline.
Understanding the Basic Framework of an Acquisition
When assessing the question, “How long should the acquisition process take?” it’s helpful to review the basic framework. The essential steps you’ll need to take in an acquisition process include identifying a buyer, planning and strategy, research and due diligence, regulatory approval and finalization, and post-acquisition integration. The amount of time you will need to spend on each of these stages depends on external and internal factors. The process may take you as little as three months or up to a couple of years. However, the average time is three to six months.
An acquisition example timeline may look like this:
- Identify target business: This may take some time, as businesses need to research viable options. It could take one to three months.
- Send a letter of intent: This simply lets the target business know you’re interested in an acquisition. It could take more than two weeks.
- Determine the value of the business: This involves determining the offer price to give to a company. Plan for at least two weeks.
- Begin negotiations: After the acquiring business submits a purchase price, negotiations begin. It could take multiple rounds of back-and-forth negotiations to agree on a price, which may take between one and three months.
- Finalizing the deal: There are legal requirements necessary to seal the deal. It’s important to have everything in proper order so the process can be finalized. This could be about one month.
- Post-acquisition integration: Once the deal is signed, there is still significant work to do. Integrating your employees and business into their new role can take as long as needed, and this timeframe is flexible and variable.
The Preliminary Steps and Their Impact on Timing
The beginning steps of the acquisition process are vital. If the planning process is faulty, it can greatly impact the length and ultimate success of an acquisition. With the right planning, however, being acquired is often a great move.
Identifying the Target
A preliminary step in the process involves identifying the target company. You want to ensure that your business is acquired by a company that will enhance what you’ve already built. Targeting a company that is well-poised to continue serving your customers with the best possible products and services is likely to be important to you. If you plan to stay on with the company, you will also want to consider how well you work with the other team. Some businesses might not be suitable for a variety of reasons. All factors must be taken into consideration when determining what business is ideal to begin the acquisition process.
Planning and Development
There are a number of things to consider before merging companies. Your company and the acquiring business will have a different set of risks and benefits to assess. Each side must ensure that the process is beneficial to their business goals. In determining the pros of such a move, the acquiring company will need to do a deep dive into its own business, as you will into yours.
This will likely include an evaluation of the industry as a whole and your business’s core competitors. Assessing the potential market share expansion will help you evaluate the financial benefits of being acquired. You’ll want to assess your supply chain and that of the acquiring company, as well as the technologies each uses. If you have compatible tools, the integration may be more seamless. Possibly most importantly, each side should review the strengths and weaknesses of the other to ensure you become a stronger company once brought together.
It may also be helpful at this stage to conduct integration planning. This involves developing a plan that addresses how the two companies will unite after the documents are finalized. Now is the time to analyze company practices, systems, and culture. Another critical piece of the puzzle is determining whether the end result will bring about greater success and profitability.
Determining Valuation
It’s vital to conduct research to discover a fair price for your business. The acquiring company will use different methods to help determine the right price to offer, and you should establish a rate you’d be happy to accept, as well as a price you’d be open to negotiating. Some methods include discounted cash flow analysis, transaction analysis, and comparable company evaluation.
Negotiations and Due Diligence – The Heart of the Acquisition
Once you identify the target business, you can move on to perform due diligence for M&A. Due diligence will ensure that everything is financially sound before moving forward. This takes time because the business will need to conduct an extensive examination of your finances, business assets, past or current legal suits or issues, and regulatory compliance. Due diligence helps the acquiring company understand whether the pros outweigh the risks. This paves the way for successful negotiations, the next step in the acquisition process. Due diligence should take about six to 12 weeks.
Negotiation takes place between the acquiring business and your company. This is an important part of the process and could take six months or more, depending on whether the two parties are aligned on price. During the negotiation process, you or your legal representatives will meet with the acquiring company to come to an agreement about the purchase price, terms and conditions of the acquisition, and how the payment(s) will be structured.
Sometimes, the value of the business and the offer price are not in agreement. It may or may not be a fair offer because several factors can cause a discrepancy in the offer price and valuation. The outcome of the negotiation depends on several critical factors:
- Market Comparable: This factor involves assessing whether your company is on a growth trajectory. The acquiring company will want to determine if your business is growing faster than its competitors.
- Type of Buyer: The priorities and negotiation style of the buyer can impact the negotiations. Some buyers are more motivated than others, making the negotiation process move more swiftly.
- Valuation: The valuation of your company’s last round of financing will affect the current estimate. The amount paid in recent share sales can also give an idea of valuation.
- Historical and Projected Financial Trends: The trends in your company’s historical financial performance and its projected financial growth are key elements in the negotiation process.
- Assets: Does your company own any proprietary technology or licenses? If so, determining the value of these assets will be an important part of the negotiation.
- Legal Issues: If your company has any risks in the business, financial, or legal realms, it can hamper its negotiating ability.
- How Many Bidders There Are: When there are multiple bidders, negotiations can be more complicated due to competition.
Regulatory Approval and Closing – Finalizing the Deal
Closing the deal is a huge undertaking that requires scrutiny. Both parties are likely eager to finalize the agreement and move forward with the next steps. Some of the steps to finalize the agreement include preparing documents so they are binding and legal. There may be regulatory approvals needed to move forward through the finalization process.
Your company may move through the negotiation and document agreement phase quickly but get hung up in the regulatory stage. The size of the company can affect the length of time this step will take. If there are signs of monopolistic behavior or violations of antitrust laws, divestiture may be necessary, which can slow down the process.
Additionally, if companies have dealings in multiple geographic locations, it can take longer as they will need to get the required approval before closing the deal.
Post-Acquisition Integration and Its Influence on the Overall Timeline
After the M&A process is completed, there is still work to be done. Post-acquisition integration is needed to ensure a seamless transition. Integration focuses on your company’s operations, culture, customers, and technological systems. The timeframe for post-acquisition integration varies. Some companies may be able to achieve it quickly, while others take more time.
External Factors That Can Affect the Acquisition Timeline
As noted, mergers and acquisitions may take up to six months or more. This time frame depends largely on how eager the buyer is to close the transaction and whether the selling company has interest from multiple bidders. Some of the other external factors that can affect the timeline are as follows:
- Regulatory approval processes
- Compliance and legal concerns
- Government policies and regulations
- Financing arrangements
- Market conditions
- Competitive issues
- External stakeholder interests
- Third-party consents
- Shareholder approval
- Cultural integration
- Unforeseen external events
Every acquisition process is unique and can vary from business to business. To ensure the best possible outcome, it’s best to work with a well-established, reputable company.
Have Questions About the Timing of an Acquisition? Reach Out Today
Now that you know more about the acquisition process and timeline, you can determine your company’s best option. At Confie, we are proud of our strong record of successful acquisitions. We are positioned to work with your business to achieve a successful outcome. With our well-established personal line insurance company, you can be assured of success. Get in touch with one of our lead experts for more details. Contact us online or call us at (714) 252-2500.
