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Chapter 3.2 | Stage-Gated Pipelines

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.

Midaxo Targets Diagram

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:  

  • Steering/Deal Committee only finds out about a deal after initial negotiations are underway and the LOI has been signed. At this point it may be difficult to go back to the negotiating table to revise deal terms;
  • Significant time and effort are deployed to an initial due diligence exercise only for the target to be deemed unsuitable as soon as the Deal/Steering Committee finds out about the opportunity late into the process;
  • Approaches to target evaluation/screening are defined in the moment – leading to a lack of clarity over what data points should take precedent, what represents a “good fit” target and what represents a “deal breaker”. Additionally, this can lead to a deal team making knee-jerk reactions and/or situations where internal politics leads the decision-making process;
  • Decisions are made sporadically rather than at pre-defined stages of the pipeline process – leading to lack of a common decision-making process;
  • Brief description of the target opportunity and why it would make sense / how is provides a strategic fit;
  • Further analysis Indicative valuation;
  • Initial synergy estimates;
  • High level integration plan Business Case;
  • Due diligence report;
  • Final valuation;
  • Revised synergy estimates and integration plan Final version of the SPA (Share Purchase Agreement);
  • Communication to Stakeholders;
  • Plan for financial and management systems & controls;
  • Revised integration plan Workstream progress reports;
  • Synergy tracking.

How a Smart M&A Platform Can Help

Within a Smart M&A Platform, Stage-gate capabilities enable teams to:

  • Quickly filter deals by stage (e.g. Target Evaluation / Due Diligence / Integration), country, business unit, deal owner, revenue, etc.;
  • Report on deals in a certain stage of the deal lifecycle or based on criteria such as revenue or geography;
  • Simply move a target across stage gates with one click – features such as traffic-lighting show when a target should be moved to the next stage of the deal lifecycle;
  • Easily drill-down to the status, issues and documents relating to a target in a particular deal stage.

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.