some of our clients:
  • Johnson and Johnson
  • YPO
  • Bristol-Myers Squibb
  • US Army
  • Air New Zealand
  • WB
  • Red Bull
  • Frito Lay
  • Mercedes-Benz
  • Delta Airlines
  • bp

Custom Merger and Acquisition Business Plans

Interested in a merger or acquisition business plan?  A successful merger or acquisition requires several steps before executing the transaction and integrating the target company:

1. Determine Objectives

Mergers and acquisition proponents anticipate that the combined companies net cash flow and financial returns will be higher than the sum of the stand-alone companies. Incremental cash flow and returns should result from complementing each other’s strengths and compensating for weaknesses.

Available synergies are the reason for a combination. The value of the synergies determines the price of the merger or acquisition.

Setting clear objectives from the start focuses management on how an acquisition can create synergies. This approach improves the likelihood of a successful transaction while minimizing wasted effort. Common objectives for pursuing mergers and acquisitions include:

  • Achieve Economies of Scale

Merging with or acquiring a company that serves the same markets can offer economies of scale in:

  • Manufacturing
  • Distribution
  • Sales and marketing
  • Administrative functions

Consider a manufacturing company that acquires a competitor with manufacturing plants that produce the same products and/or serve the same markets. The combined companies may reduce the number of plants while serving existing and future demand. The production capacity of the remaining plants must be larger than the two company’s original output. Underutilized capacity, more efficient equipment, and better processes are some reasons this could occur.

Rationalizing administrative functions is often a basis for combining companies. Headquarter costs are targeted for reduction.

  • Expand Product or Service Offerings

 A merger or acquisition can expand the combined company’s product or service offerings.

An office equipment and supplies distributor could create value by acquiring a laptop computer and personal electronic devices distributor. Providing these products could increase sales through existing channels with little added expense.

An accounting firm might consider acquiring a company that installs accounting software. The acquisition could expand its services to existing clients and add new clients.

  • Enter New Markets

Entering new markets is another common objective for combining companies. A new market can be a geographic market, a new product, or service market.

A company that purchases a foreign company to establish a presence in a foreign market is an example of entering a new geography.

Entering a new product or service differs from expanding product or service offerings. The new market has no relationship or a slight relationship to the company’s current business.

  • Maintain Competitive Position

A company may seek to acquire a competitor to increase its market share.

  • Stabilize the Company

A company whose financial performance is faltering may acquire a healthier company to stabilize financial results. Over time, the acquisition would increase profitability and cash flow.

Many mergers and acquisitions can create synergies in more than one way. It is important to prioritize the company’s objectives for a merger or acquisition. The priority is based on what the company’s needs to grow and best increase financial returns. The company’s focus on the priority objective supports disciplined decisions and maximizes the potential for success. Additional synergies will just enhance value creation.

2. Qualify Targets

Having determined a priority objective, the next step is to identify and qualify targets.

Targets are identified in several ways. Depending on the company’s objective, competitors, suppliers, and even customers can be appropriate targets. If the company has an existing relationship with a potential target’s senior management, direct contact may be appropriate. Or the company could ask another party to gauge interest in a merger or acquisition. This could be be achieve by”

  • an outside executive with a relationship with the target
  • an investment banker
  • a legal firm or an industry trade association
  • private equity firms
  • angel investors
  • business brokers.

Once there is agreement to investigate a merger or acquisition, the formal due diligence process begins. This critical step enables the company to evaluate the target’s competitive position and confirm that the target could address the company’s primary objective. The company can also assess the financial condition of the target, and identify material risks and opportunities. Due diligence qualifies the target through several steps:

a. Meet with the target’s senior executives for the following::

  • Discuss broad parameters of a potential merger or acquisition
  • Outline the due diligence process
  • Discuss access to employees, facilities, accounting and other records and customers
  • Set a schedule for completing due diligence and submitting an initial offer

b. Meet with functional area senior managers in:

  • Manufacturing
  • Distribution
  • Sales and marketing
  • Finance and accounting
  • Information systems

c. Tour facilities.

d. Analyze the target’s records including:

  • Production
  • Asset maintenance
  • Distribution sales volumes and pricing
  • Inventory records and accounting and financial information, such as
    • general ledger
    • bank accounts
    • accounts receivable and payable
    • fixed assets and capital investments
    • short and long term debt

Meet with major customers (and smaller customers, if practical). Obtain customer opinions on the target’s products, services and operations. Ask customers for their expected volume of business with the target over the next three to five years.

3. Draft A Custom Merger and Acquisition Business Plan

Using the information obtained with due diligence, draft a merger and acquisition business plan for internal management approval. This will be the basis of business plans used for negotiations with the target and financing parties.

The M&A business plan should focus on how the acquisition will create value through synergies created by the combination of the company and the target. The plan could include an analysis demonstrating that acquiring the target will have one or more of the following impacts:

  • Create economies of scale resulting in reduced operating expenses.
  • Increase volume versus current and projected trends by any of the following:
    • expanding products and services
    • entering new markets
    • enabling price increases above expectations

The business plan contains the following sections:

a. Executive Summary – Include the following:

  • An outline of the strategic objectives for acquiring the target
  • An estimated value of expected synergies
  • The assumptions about synergy opportunities
  • A summarized financial return analysis that demonstrates the company’s return targets are equaled or exceeded
  • A discussion of potential risks and opportunities
  • A schedule for executing the transaction
  • A discussion of integration issues including potential cultural differences with the target

b. Competitive Landscape – Identify the target’s primary products/services, markets and competitors. Describe how the target’s strategy (low cost/high volume; premium price/premium quality; unique product attributes) fits the company’s objectives.

c. Volume and Revenue – Discuss volume and revenue. Include analysis of the company and target individually, and the combined companies. Explain expected synergies. Discuss in detail each product, service and customer that accounts for a significant amount of volume or revenue (e.g., 10%). Provide marketing and sales plans.

Include graphic presentations of volume and revenue to increase understanding of the company and the target. Demonstrate how a combination will create value.

d. Operating Expenses – Identify major expenses and the basis for planned amounts stated (i.e., variable with volume, fixed over medium to long term, new or increased because of specific event). Identify expected synergies.

e. Capital Expenditures – Provide a schedule of capital expenditures over the plan horizon, identifying significant projects. State the rationale and expectations for each significant project.

f. Financial Statements – Provide an integrated balance sheet, income statement and cash flow statement for three (3) years of actual results. Include a plan/forecast for the plan horizon. Provide summary statements and planning assumptions in the body of the plan. Include detailed financial statements as an attachment.

g. Sources and Uses – Provide a table indicating the sources of funds for the transaction and the uses of those funds (see example below).

Sources and Uses of Funds

(USD 000’s)      
Sources: Uses:
Bank loans 40,000 Fixes assets 35,000
New equity 10,000 Working capital 5,000
Goodwill 10,000
Total sources 50,000 Total uses 50,000

Include a schedule for use of the funds.

h. Estimated Financial Returns – Present the estimated financial returns based on the planned financial statements. If necessary, summarize the presentation in the body of the plan and provide a detailed presentation as an attachment.

i. Financial Ratios – Include financial ratios based on lender requirements post transaction over the plan horizon.

The merger and acquisition business plan will be used to determine the estimated value of the target and the price the company offers. It is the basis of negotiation with the target. The company must prove that the synergies in the business plan can be achieved. The target must be acquired for a value that allows the company to meet its financial return objectives.

A distinguished member of our business plan writing team, Tom Loftus, MBA has served as the Chief Financial Officer of two companies and Senior Vice President, Finance / Treasurer of Genesee & Wyoming Inc., a mid-size company listed on the New York Stock Exchange. Mr. Loftus has created numerous merger and acquisition business plans and developed financial models for startup financing, acquisition opportunities, project and corporate financing transactions, government grant and loan applications and capital authorization requests.

Mr. Loftus is proficient in corporate valuations, operations planning, obtaining grant and loan funding and organization design for finance and accounting. He has extensive experience negotiating purchase and sale agreements and long term supply agreements with private companies, debt and equity financing agreements with commercial bankers, investment bankers and government agencies.

Call (424) 204-6133

Monday to Friday, 8:30 am – 5 pm PST or

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to receive a no-obligation fixed quote.

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