The M&A deal lifecycle should be split into clear stages, mainly to increase control across a deal and to reduce risks by allowing for the introduction of defined-deal stages (Stage-gates). Stage-gates have dependencies linked to another stages, requiring the former to wait for the completion of the latter (sequential phases) – for example, due diligence cannot commence until an LOI is in place with a target. How progressive deal stages are reached is important and should be approached in a structured manner via pre-defined entry and output criteria.
Each stage across the deal lifecycle (or deal pipeline) should include clear entry and output criteria to be achieved before a target/deal can move to the next stage. The stages can vary a bit, but generally the first stage is to create a list of potential targets. The next stage is to analyze if prospective targets and the associated deals are worth further study. If so, then a target may be progressed to Due Diligence > Transaction Negotiations > Signing & Closing and finally, Post-merger Integration.
The Importance of Stage-gates
Not having a Stage-gate process in place can lead to poor deal discipline and the wrong targets being pursued. It heightens the risk of surprises late in the deal process – such as when the M&A Steering/Deal Committee are looped in for the first time – and can lead to promising targets slipping through the net due to lack of a formal (and therefore a slow) decision making process.
Here are some possible scenarios arising from a lack of Stage-gates across the pipeline process:
How a Smart M&A Platform Can Help
Within a Smart M&A Platform, Stage-gate capabilities enable teams to:
Using a Smart M&A Platform to define Stage-gates also means access can be limited so that individual users only see the deals relevant to them, while managers and/or the Steering/Deal Committee can see all deals, etc. The ability to grant specific access rights within a Smart M&A platform and to control exactly is accessible is a powerful feature that is not possible with homegrown Analogue spreadsheet-based solutions.