M&A pipeline management: Stages, metrics, best practices

In 2022, nearly 50,000 merger and acquisition deals were completed globally, demonstrating the ongoing popularity of M&A transactions despite the yearly fluctuations. However, to navigate these deals efficiently, a range of well-established strategies and processes are required, among which is M&A pipeline management.

In this article, we explore how to build and effectively manage an M&A pipeline. We also suggest tools and solutions for simplifying and streamlining M&A pipeline management.

M&A pipeline: Definition and main stages

An M&A pipeline is the sequence of events during an M&A transaction. It serves as a framework for managing the complex processes of buying or merging with other companies, ensuring both parties follow all important steps.

For Christopher Kummer, an advisor on strategy, M&A, and HR, having a deal pipeline is a must-have for any company committed to achieving growth. The expert is sure that: “For a serious strategic acquirer, the building of a strong M&A pipeline makes absolute sense and is something that senior management needs to constantly spend time on.”

These are the key pipeline stages to include in the deal process:

1. Developing an acquisition strategy. The pipeline begins with acquisition planning, which includes formulating the acquisition mission, setting clear strategic objectives, assessing risks, and assigning responsibilities.
2. Defining potential acquisition targets. The step involves selecting the most appropriate target companies based on various criteria such as industry, size, financial health, and strategic fit.
3. Connecting with the seller. Corporate development teams connect with a seller while at the same time gathering initial information to keep the potential deal moving forward to due diligence.
4. Due diligence. The due diligence process involves conducting a comprehensive investigation of the target’s finances, operations, and legal matters to assess its suitability for acquisition.
5. Signing and closing. At this stage, the deal teams sign all legal documents and purchase agreements, transfer funds, and complete the transaction.
6. Integration‍. The acquired business is combined with the acquiring company’s operations, systems, and culture to realize cost and revenue synergies.

What requires tracking on an M&A pipeline?

These are the key M&A pipeline metrics to track:

1. Task prioritization. In the M&A pipeline, effective task prioritization is crucial for streamlining the deal process. This involves categorizing tasks by importance rather than marking them as high or low priority. Parties can create a task list during the kickoff meeting with stakeholders from both sides to ensure clarity on the next steps.
2. Risks and potential issues. Monitoring risks helps identify and address challenges before they become critical issues. This primarily concerns all risks related to products, customers, and the target’s go-to-market. If neglected, they may result in customer attrition and revenue declines, jeopardizing the success of the deal.
3. Employee satisfaction. Businesses should track company personnel risks and offer employees financial reward based on performance, productivity, and commitment. It maintains employee morale and promotes cultural integration, preventing talent loss and post-integration challenges.
4. Compliance. To prevent legal challenges, fines, or even deal termination, it is essential to monitor legal and regulatory compliance, which includes obtaining the necessary approvals and clearances.
5. Resource allocation. Keeping track of resource allocation, including financial, human, and technological resources, is crucial, as neglecting resource tracking leads to budget overruns, resource shortages, and operational disruptions.

Tracking these metrics in the M&A pipeline enables organizations to address challenges proactively and make informed decisions throughout the M&A process, contributing to a successful transition.

How to build and effectively manage an M&A pipeline?

Let’s explore key M&A deal stages in more detail.

1. Developing an acquisition strategy

The pipeline steps begin with developing an acquisition strategy like the following:

• Write a clear mission statement. It needs to define the purpose of the acquisition. This statement helps stay on track and ensures alignment with strategic goals when there are uncertainties about the deal. 
• Set strategic objectives. These must be aligned with the mission statement. They should outline the aims to achieve through the transaction, like market expansion, revenue growth, cost synergies, or technology integration.
• Set a realistic timeline. You should take into account various factors like deal complexity, regulatory approvals, and due diligence depth. Depending on those factors, a deal may take between six months to several years to complete.
• Decide on who will be involved in the M&A process. According to Deloitte, there are five key stakeholders that significantly impact the deal: the C-suite provides oversight, the corporate development team manages the process, transaction leads drive execution, the business unit guides post-acquisition operations, and external advisors offer expertise and support.

2. Defining potential acquisition targets

The next step is deal sourcing, which is itself just a brief overview of acquisition prospects you have on a target list. To select the most appropriate and fruitful targets, it’s crucial to set entry criteria:

• Company size. It’s usually measured by metrics like the number of employees or the amount of revenue generated. Candidates must be large enough to have a meaningful impact on the acquiring company.
• Profitability. It serves as an indicator of a target’s product success, financial stability, and potential for future growth.
• Geographic location. It matters because it affects the final goal of the acquisition. For example, if the goal is to expand markets, overseas companies may be preferred over local businesses.
• Type of product. It’s crucial to evaluate whether the target’s products bring additional value to the business.

3. Connecting with the seller

During this stage, it’s essential to track potential targets to provide corporate development with the necessary data. The key activities in this step include:

• Initial data request. To decide whether or not to continue pursuing the target, the deal team may initiate initial data requests and gather critical information like KPIs, financial performance, or operational metrics. 
• In-person meeting. If the initial data analysis brings positive results, schedule an in-person meeting. It’ll give a clearer understanding of whether the potential deal should progress to the due diligence stage.

4. Due diligence

Due diligence involves a thorough examination of the target. It allows the buyer to see both the big picture and the details by gathering valuable data that isn’t publicly available.

Here’s what the due diligence team members analyze:

• Financials. It includes various financial statements, such as balance sheets, profit and loss (P&Ls) statements, future budget plans, and cash flow.
• Operations. It includes the target’s business model, day-to-day operations, supply chain, facilities, and equipment.
• Legal aspects. It includes contracts, legal disputes, intellectual property rights, and regulatory compliance. 

5. Signing and closing

Once due diligence is completed and the decision is made to move forward, it’s time to officially seal the deal. Here’s what that includes:

• Negotiation and agreement. The companies finish negotiating the acquisition terms, including the purchase price, representations, warranties, indemnities, and covenants. Once terms are agreed upon, a definitive purchase agreement is drafted.
• Financing arrangements. If the acquiring company is securing financing to fund the acquisition, it must finalize these arrangements. This might involve securing loans, lining up investors, or using available cash reserves.
• Purchase price payment. The purchase price is paid to the selling shareholders, which can be in the form of cash, stock, or a combination of both.

6. Integration‍ 

Integration is the final step of the deal flow. This should be a collaborative and efficient process, as it determines the success of the entire merger or acquisition. Here’s what to keep in mind to avoid a negative scenario:

• Team formation. Identify the integration team members who will oversee the integration process. The team should include members with expertise in areas such as HR, IT, legal, finance, and communication.
• Measurement and evaluation. Integration efforts should be monitored and evaluated against predefined benchmarks and objectives. This step helps identify areas that require further attention and adjustments.

Buyers who don’t treat integration seriously may fail to capture expected synergies or lose key employees.

Best practices for M&A pipeline management

These are the most essential tips to follow to ensure a successful M&A transaction:

1. Effective communication. Strategic communication transparency throughout the M&A process breeds efficiency and promotes trust among stakeholders. To ensure this, establish clear communication channels, maintain open and honest dialogue, and provide regular updates on the progress and key milestones of the M&A process.
2. Thorough due diligence. The more comprehensive the due diligence, the more informed decisions you’ll make. Rushing due diligence can lead to costly risks and mistakes, so take as much time as required (from one to six months depending on the deal complexity).
3. Early integration‍ planning. One of the robust integration practices includes beginning integration planning early in the M&A process and developing integration plans before the deal closes. To ensure the transaction’s success, begin as early as possible, ideally during the due diligence.
4. Leverage technology. Technology plays a crucial role in streamlining M&A processes, from identifying strategic fit to understanding a company’s potential value. This can be virtual data rooms for M&A, pipeline management software, project management software, etc.

M&A pipeline management: Dedicated software vs. Excel

Dedicated M&A pipeline management software, also referred to as M&A lifecycle management software, is a solution designed to streamline and centralize the entire M&A process, improving compliance, due diligence, and communication while reducing risks and saving time and costs.

Companies, especially those navigating multiple deals a year, choose it over other tools like Excel. Here’s why:

• Centralized storage
  M&A software is a preferred storage tool as it eliminates the unwieldy and inconvenient exchange of M&A-related documents and data across various platforms. It allows secure sharing and streamlined collaboration among M&A teams in one centralized place. In contrast, Excel files lack those capabilities and are usually scattered across different locations.
• Workflow automation
  M&A software solutions offer project management features like task assignments, automatic questions assignment, notifications, reminders, and progress tracking. They help eliminate repetitive tasks, save time, and streamline the M&A process. These capabilities outperform manual processes in Excel.
• Real-time collaboration
  Due to the M&A software, multiple users can access and update information simultaneously, ensuring that everyone is working with the most current data. In Excel, simultaneous editing can lead to version control issues and data inconsistencies.
• Reporting and analytics
  M&A software provides advanced reporting and analytics tools, allowing users to generate reports, track deal progress, and monitor user behavior. Excel requires manual data management for similar reporting, which can be time-consuming and error-prone.

Here’s a table comparing dedicated M&A pipeline software and Excel:

iDeals’ VDR for M&A pipeline management

iDeals’ virtual data room is a software solution designed for secure document sharing and collaboration, often used in M&A pipeline management. Here are its key advantages:

1. Top security features. Store documents safely due to robust security features, including document encryption, access controls, two-factor authentication, audit trails, dynamic watermarks, and built-in redaction.
2. Ease of use. The user-friendly interface makes it simple for deal-makers to upload and organize documents. Single login and password for all projects eliminates the need to remember all passwords and project names. The mobile app allows access to the platform from anywhere and anytime.
3. Time and cost savings. By automating document-related tasks and providing a centralized platform for collaboration, iDeals’ VDR saves time and reduces costs associated with the M&A process, like physical storage and traveling for in-person meetings.
4. Customer support. iDeals’ VDR offers excellent customer support in 13 different languages to assist users with questions that may arise during the M&A process. This includes 24/7/365 availability, in-app live chat support, and fast response time (25 seconds via phone and 30 seconds via chat).
5. Compliance. iDeals’ VDR adheres to the highest standards in data security. The platform is ISO27001 certified, ensuring security policies and practices. It also maintains SOC2 compliance to protect data. Furthermore, its data centers are equipped with strong physical security and authentication systems.

Key takeaways

• The M&A pipeline is a structured framework for managing complex processes in mergers and acquisitions.
• Key pipeline stages include acquisition strategy development, defining potential targets, connecting with sellers, due diligence, signing and closing, and integration.
• Metrics to track in the M&A pipeline include task prioritization, risk management, employee satisfaction, compliance, and resource allocation.
• Best practices for M&A pipeline management encompass effective communication, thorough due diligence, early integration planning, and leveraging technology for streamlined processes.