M&A modeling plays a vital role in evaluating the financial feasibility of combining companies. These models provide insights that guide strategic decision-making throughout the merger process.
What is a merger model? What are merger model assumptions? How are effective M&A models built? Find out in the article.
What is an M&A model?
An M&A model is a financial tool used in corporate finance to evaluate the potential impact of a merger or acquisition between two companies. The primary purpose of the merger model is to determine if the transaction will be financially beneficial for the acquiring company and its shareholders.
More precisely, it helps in assessing the target company’s value, forecasting the combined financial performance, estimating potential synergies, analyzing different financing options, and determining whether the deal will be accretive or dilutive to the acquiring company’s earnings per share (EPS).
This allows decision-makers to make informed choices about whether to proceed with the merger or acquisition, ensuring strategic alignment between the two companies.
An M&A model can also be called a merger model or acquisition model.
Additional read: You might also be interested in reading our comprehensive articles on financial modeling examples and company valuation methods.
Understanding the basics of M&A modeling
Merger and acquisition modeling involves several principles that are critical for evaluating the financial impacts of a merger or acquisition. Here are the key concepts:
- Synergy capture
It involves identifying financial synergy that arises from the merger, such as cost savings or increased revenue that would not be achievable independently. This often requires a thorough analysis of both companies’ operations to determine where efficiencies can be gained.
- Cost integration
It focuses on combining operations, systems, and processes to reduce expenses. This can involve consolidating facilities, reducing workforce redundancies, and streamlining administrative functions, which can lower operating costs and improve profitability.
- Revenue enhancement
It looks at ways to boost sales or market share through the merger, such as cross-selling products, expanding into new markets, and leveraging the combined strengths of both companies.
Accurate acquisition modeling requires detailed financial projections, including forecasting revenues, expenses, cash flows, and earnings, and involves analyzing different scenarios and assumptions to assess the potential impact on the single business entity.
Reliable models are crucial for conducting a thorough risk assessment, identifying rewards, determining the feasibility of achieving projected synergies, and ultimately deciding whether to proceed with the merger or acquisition.
Effective M&A modeling enables executives and board members to make informed decisions that align with strategic objectives, maximize shareholder value, and ensure a successful M&A integration.
Merger model assumptions
Assumptions are critical to the construction of a merger and acquisition model. They provide a structured framework to forecast future financial performance and the potential success of the deal.
Assumptions guide the model’s inputs and outputs, affecting everything from projected revenues and costs to synergies and valuation metrics. Without well-founded assumptions, the model’s projections could be highly inaccurate, leading to poor decision-making.
Let’s explore the assumptions and see how they impact various parts of the model like cash flow projections, valuation, and synergy calculations:
This assumption involves predicting how the combined company’s revenue will grow over time. It often takes into account historical growth rates, market trends, and the potential for new market expansion.
Cost synergies in M&A are the efficiencies and savings expected from the merger, such as reduced operational costs, shared resources, and economies of scale. The mergers and acquisitions model assumes a timeline for realizing these synergies and estimates the annual cost savings.
Revenue synergies refer to the increased revenue potential from the merger, such as cross-selling opportunities, new customer acquisition, and expanded market reach. Assumptions are made regarding the timing and magnitude of these additional revenues.
These are the one-time costs associated with integrating the two companies, including expenses related to merging IT systems, rebranding, severance for redundant positions, and legal and advisory fees.
These are assumptions about the overall economic impact, industry-specific trends, and competitive landscape. This includes interest rates, inflation rates, and market growth rates, which affect both the cost of capital and potential growth opportunities.
This includes the structure of the deal (cash, stock, or a combination), the interest rate on any debt used to finance the acquisition, and the terms of equity issuance.
Assumptions about the effective tax rate post-merger, which can significantly impact the company’s net income and cash flow projections.
Merger modeling assumptions significantly influence cash flow projections, valuation, and synergy calculations. For example, revenue growth rates impact projected revenues and cash inflows, affecting the top line of the cash flow statements. Cost synergies reduce operating expenses, leading to higher net incomes and improved valuations.
Integration costs, on the other hand, increase short-term cash outflows, reducing initial net cash flow. Market conditions affect the discount rate used in discounted cash flow (DCF) valuations, influencing the present value of future cash flows.
Financing assumptions impact interest expenses and overall net cash flow, while tax rate assumptions affect net income and available cash for reinvestment or distribution.
Steps to build an effective M&A model
Here’s a short step-by-step guide on how to build a merger model.
1. Making acquisition assumptions
When constructing merger models, it’s crucial to start with acquisition assumptions. If the buyer’s stock is undervalued, the buyer may prefer to use cash rather than equity for the acquisition to avoid diluting existing shareholders by issuing many new shares.
On the other hand, the target company might prefer receiving equity, especially if they believe it will appreciate more than cash. Reaching a mutually acceptable consideration is vital for finalizing the deal.
Key assumptions include:
- Purchase price. Determine the price to acquire the target company.
- New shares issued. Calculate the number of new shares to be issued as part of the consideration.
- Cash consideration. Value the cash component to be paid to the target.
- Synergies. Estimate the cost savings from combining the businesses.
- Timing for synergies. Predict when the synergies will be realized.
- Integration costs. Forecast the one-time expenses for integrating the two companies.
- Financial adjustments. Make necessary accounting-related adjustments.
2. Projecting financials
Next, make financial projections, similar to those in a regular DCF model. Analysts need to make assumptions about revenue growth, profit margins, fixed and variable costs, capital structure, capital expenditures, and all other accounts on the company’s financial statements.
This involves building a three-statement model, linking the income statement, balance sheets, and cash flow statement. This step should be done separately for both the target and the acquirer.
3. Valuing businesses
After completing the projections, perform a valuation of each business using a DCF analysis, comparable company analysis, and precedent transactions. This step involves several assumptions and requires a skilled analyst to ensure accurate and reliable valuations.
Key steps include:
- Comparable company analysis. Compare the target with similar companies.
- DCF model. Build the DCF model to estimate the intrinsic value.
- WACC calculation. Determine the weighted average cost of capital.
- Terminal value. Calculate the business’s terminal value.
4. Business combination and making pro forma adjustments
When combining the two companies, add the balance sheet items of the target to those of the acquirer. This process involves several accounting adjustments, such as calculating goodwill and adjusting for stock shares and options. This is also where synergy estimates are integrated.
Key assumptions include:
- Form of consideration. Decide on cash or shares.
- Purchase price allocation (PPA). Allocate the purchase price.
- Goodwill calculation. Determine goodwill from the acquisition. Note that goodwill occurs when the buyer pays more than the fair market value of the net tangible assets listed on the target company’s balance sheet.
- Accounting practice adjustments. Reconcile any differences in accounting practices.
- Synergies calculation. Include estimated synergies.
5. Conducting accretion/dilution analysis
The final step is to assess whether the acquisition will be accretive or dilutive to the buyer’s earnings per share (EPS). An accretive deal increases the buyer’s EPS, while a dilutive deal decreases it. This analysis helps the buyer understand the impact of the target’s financial performance on the combined company’s EPS.
Key assumptions include:
- New shares issued. Calculate the number of new shares issued.
- Earnings acquired. Estimate the earnings from the target.
- Synergy impact. Assess the effect of synergies on earnings.
Accretion and dilution
Let’s explore the merger model example through an accretion/dilution analysis to understand how the transaction impacts the EPS of the acquiring company.
Here are the proposed acquisition details:
Acquisition cost — $10,000
Method — 50% cash and 50% stock (using Company A’s stock price of $20 per share)
| Metric | Company A | Company B |
|---|---|---|
| Net income | $3,000 | $2,000 |
| Shares outstanding | 500 | 400 |
| Current EPS | $3,000 / 500 = $6.00 per share | $2,000 / 400 = $5.00 per share |
And this is how you calculate if the acquisition is accretive or dilutive:
| Steps | Description |
|---|---|
| 1. Calculate new shares issued |
|
| 2. Combined outstanding shares post-merger |
|
| 3. The combined net income of both companies |
|
| 4. Combined EPS |
|
| 5. Accretion/dilution analysis |
|
The calculated 11.17% increase in EPS indicates that the merger is accretive to Company A. It suggests that the merger is expected to increase EPS for the combined company, potentially enhancing shareholder value.
Note: In practice, additional factors such as synergies, integration costs, financing structure, and tax implications would be incorporated into a comprehensive merger model. Additionally, keep in mind that, typically, advanced financial modeling and mergers and acquisitions software are used for conducting detailed merger analysis.
Challenges in M&A modeling
Here are some common challenges faced when building out financial models for mergers or acquisitions:
Reliable and accurate data is critical for M&A models. However, obtaining detailed and precise financial information from the target company can be challenging, especially if the target company is private or has less stringent reporting requirements.
Solution. Establish data-sharing agreements with the target company to ensure transparency and access to accurate information.
Creating accurate financial projections involves numerous assumptions about future revenue, costs, and market conditions, which can be uncertain and subjective.
Solution. Use historical data and industry benchmarks to make assumptions. Conduct sensitivity analysis to understand the impact of different assumptions on the model outcomes and develop multiple scenarios to cover a range of potential states.
Different valuation methodologies (discounted cash flow, comparable company analysis, leveraged buyout model) can lead to different results, causing potential disagreements.
Solution. Use a combination of valuation techniques to get a comprehensive view of the target’s value. Engage independent valuation experts to provide an unbiased assessment.
Measuring the costs of debt, modeling the optimal debt financing structure, and forecasting interest rates can be difficult, especially in volatile economic conditions.
Solution. Use current market data and economic forecasts to model various interest rate scenarios and their impact on the company’s financial health.
Modeling the tax implications of the acquisition, including changes in tax rates, tax credits, and the impact of different ways of deal structuring, can be complex.
Solution. Engage tax advisors to assess the tax implications of the deal. Incorporate detailed tax modeling into the financial analysis to understand the net impact on the company’s financial position.
Accurately modeling the financial impact of post-merger integration activities, including synergies and integration costs, is complex and uncertain.
Solution. Develop detailed post-merger integration planning with specific financial targets. Monitor the integration process closely and update the financial model regularly to reflect actual performance against projections.
Key takeaways
- M&A modeling evaluates the financial impact of mergers and acquisitions, helping assess synergies, financial performance, and EPS accretion or dilution.
- Assumptions in acquisition models guide projections of revenue growth, cost synergies, integration costs, and market conditions, influencing decision-making accuracy.
- Using multiple valuation methods (e.g. DCF, comparable company analysis) ensures a comprehensive view of the target’s value, minimizing discrepancies.
- Challenges in M&A modeling include data accuracy, forecasting uncertainties, valuation discrepancies, debt structuring complexities, and intricate tax implications.
Building robust M&A models is crucial for ensuring informed decision-making and strategic alignment during mergers and acquisitions. These models provide a structured approach to assess financial feasibility, evaluate synergies, and mitigate integration risks, ultimately enhancing the chances of successful integration and value creation for stakeholders.
While you don’t necessarily need a formal mergers acquisitions education to work in M&A, investing in specialized courses can significantly enhance your capabilities. These courses offer essential skills, from deal structuring and valuation to negotiations and post-merger integration, providing a comprehensive understanding of the processes involved in corporate transactions.
This article aims to explain why, how, and where to pursue a certificate in mergers and acquisitions. It also provides a review of the top eight M&A training courses.
Why pursue M&A certification?
M&A training is a strategic investment that can significantly impact your professional growth and success in the competitive field of mergers and acquisitions. Here are more details on its benefits:
Obtaining an M&A certification equips you with specialized skills and knowledge. You gain a deep insight into the complex processes involved in corporate transactions, which enhances your expertise and makes you more proficient in handling such deals.
An M&A certificate boosts your credibility in the industry. It demonstrates to employers, clients, and peers that you have met a recognized standard of knowledge and competence in the field. This can distinguish you from other professionals and make you a more attractive candidate for various roles.
Obtaining an M&A certification can be a significant factor for promotions or transitioning into more senior roles. Companies often look for certified professionals when hiring for positions such as M&A advisors, investment bankers, corporate development managers, and financial analysts.
Certified M&A professionals often enjoy higher M&A salaries. Employers are willing to pay a premium for individuals who can add value to their M&A activities, making certification a worthwhile investment in your career.
Many M&A courses offer opportunities to connect with industry professionals, which can be invaluable for career growth. Additionally, programs often host networking events like in-person M&A seminars, advanced workshops, and lectures, allowing you to meet influential figures in the M&A field.
M&A programs often include practical case studies, simulations, and real-world projects. This hands-on experience ensures that you can apply theoretical knowledge in real situations, making you more effective in your role and giving you the confidence to handle real M&A transactions.
Additional read: Check out the article mergers and acquisitions definition to quickly grasp how companies combine and acquire each other. You might also be interested in the article describing the best books for mergers and acquisitions.
Criteria for choosing the best M&A certification programs
Here are key factors to consider when selecting a mergers and acquisitions certificate program:
Ensure the program has an accredited M&A certification by a recognized organization and a good industry reputation.
Review the syllabus to confirm it covers essential M&A topics like deal structuring, valuation, due diligence, negotiation, and integration, and includes practical case studies.
Investigate the qualifications and experience of the instructors, prioritizing programs taught by industry experts with substantial M&A experience.
Consider whether the program is offered online, in-person, or in a hybrid format, and ensure the schedule fits your availability and learning style.
Compare the costs of different programs and what is included in the fee, and investigate if there are scholarships, financial aid, or payment plans available.
To obtain the best M&A certification, ensure it’s recognized and valued in the industry. Look for testimonials or course reviews from past participants regarding the program’s impact on their careers.
Consider the length of the program and the time commitment required, making sure it aligns with your personal and professional schedule.
Top eight M&A training courses
Here’s a short list of the best M&A courses that the 2024 M&A training market offers:
- New York Institute of Finance M&A Professional Certificate
- Kellogg Executive Education: Creating value through strategic acquisitions and alliances
- Corporate Finance Institute M&A Modeling Course
- Columbia Business School Mergers and Acquisitions Course
- CIMA Mergers and Acquisitions Masters Course
- Certified Mergers & Acquisitions Professional Program
- International Mergers & Acquisitions Expert (IM&A)
- Stanford Business Mergers and Acquisitions Course
Now, let’s explore each M&A course in more depth.
1. New York Institute of Finance M&A Professional Certificate
Format: online (self-paced), virtual (live), in-person (NY campus)
Cost: $1,550 for online, $3499 for in-person and virtual
Duration: 40 hours for online and 5 hours for in-person/virtual
More info: link
This mergers and acquisitions training provides a thorough exploration of the M&A industry. It covers every phase of transactions, from pre-deal strategies to post-merger integration. Participants will earn 35 CPE credits upon completion.
Prerequisite knowledge for enrollment includes basic MS Excel skills, familiarity with corporate finance principles and valuation, and an understanding of financial markets and instruments.
Participants will learn to integrate four key topics, addressing both qualitative and quantitative aspects of M&A: mergers and acquisitions theories, accounting practices in M&A, the significance of free cash flow in decision-making, and techniques for structuring M&A deals.
Best for: financial analysts and managers, bankers, strategic planning professionals, corporate finance lawyers, and market regulators looking to enhance their expertise in M&A transactions.
2. Kellogg Executive Education: Creating value through strategic acquisitions and alliances
Format: in-person
Cost: $10,700 (includes lodging and meals)
Duration: 5 days
More info: link
The course combines academic theory with practical application. Led by renowned faculty in finance, accounting, management, and organizational change, this interdisciplinary program guides participants through the entire M&A process. It covers strategic fit assessment, market trends evaluation, financing decisions, and the development of customized post-merger integration plans.
Participants will also explore topics such as valuation, financial analysis, negotiation strategies, international M&A considerations, and best practices for effective integration.
Key benefits include learning to determine shareholder value, identifying strategic synergies, devising acquisition strategies, and executing high-impact integration plans. The course also offers opportunities to apply newly acquired skills through practices like a simulation of a deal.
Best for: mid- and senior-level executives and managers involved in acquisition and alliance activities, as well as those in corporate development, planning, and finance roles.
3. Corporate Finance Institute M&A Modeling Course
Format: online
Cost: the course is available through an annual subscription that includes 200+ online courses — $298 for self-study and $508 for expert guidance
Duration: 8 hours
More info: link
This advanced financial modeling course provides comprehensive training in creating detailed models to analyze M&A transactions thoroughly. Participants in this course will learn how to structure M&A models efficiently, integrating both the acquirer and target entities into comprehensive pro forma models.
Key topics include setting up essential assumptions and drivers, calculating adjustments for post-transaction balance sheets, and conducting sensitivity analysis to evaluate the impact of various assumptions on transaction outcomes.
Through video lectures, participants learn the complexities of M&A modeling, including cash flow analysis, purchase price allocation, and accretion/dilution analysis. The course emphasizes understanding the strategic implications of M&A transactions, using a case study approach focused on Online Company Inc’s acquisition of Brick ‘n’ Mortar Co.
Best for: accountants, financial managers, and professionals in investment banking, corporate development, private equity, and corporate finance sectors.
4. Columbia Business School Mergers and Acquisitions Course
Format: online
Cost: $3,700
Duration: 9 weeks, 4-6 hours per week
More info: link
In this mergers and acquisitions certification program, participants learn a comprehensive framework covering both offensive and defensive strategies in M&A. The course provides a thorough exploration of corporate strategy formulation, execution tactics, legal considerations, and risk management.
The course better suits those who have experience in corporate finance, capital markets, or investment management. This M&A training includes modules devoted to strategic and practical considerations in M&A, merger agreements and sell-side dynamics, purchase agreements, valuation techniques, and deal math.
Prospective learners can expect interactive elements such as live sessions with faculty, case studies, assignments, small group projects, peer discussions, feedback sessions, and real-world industry examples featuring financial documents.
The curriculum focuses on mastering the principles and mechanics of deal documentation, exploring diverse transaction structures, and evaluating whether the parties involved derived the “benefit of the bargain”.
Participants will also gain insights into the critical role of valuation throughout a real-world merger process, exploring different valuation methods and the mathematical foundations underlying deal decisions.
Best for: anyone interested in investment banking, consulting, equity research, corporate development, corporate lending, strategic planning, private equity, and leveraged finance.
5. CIMA Mergers and Acquisitions Masters Course
Format: online
Cost: £55 – £65
Duration: N/A
More info: link
CIMA (the Chartered Institute of Management Accountants) offers highly-regarded certifications in management accounting. This mergers and acquisitions program covers the essential aspects of M&A activities, including the motivations behind acquisitions, factors influencing pricing decisions, the value proposition of mergers, and the intricacies of bidding and negotiation processes.
Participants will learn acquisition strategies, business valuation techniques, and the various types of mergers such as statutory, subsidiary, and horizontal mergers. Practical, hands-on exercises with real-world examples are integrated throughout the course for thorough understanding and practical application.
Upon successful completion of the program, participants will be able to identify the purposes of M&A activities, assess risks associated with poorly managed transactions, determine valuations for a target company, navigate the bidding and acquisition processes, and implement post-acquisition strategies to achieve expected value.
Best for: management accountants, controllers, CFOs, finance vice presidents, and finance directors.
6. Certified Mergers & Acquisitions Professional Program
Format: live via Zoom
Cost: $2,950 (Price includes electronic program materials, templates and examples, and access to the Learning Management System. Special pricing is available for multiple participants from the same firm).
Duration: 6 weeks
More info: link
The Certified M&A Professional (CM&AP) Certificate Program, developed by the Coles College M&A Academy, is a dedicated course specifically tailored for industry practitioners working with private companies in the middle market and business owners preparing for acquisition or sale.
Participants start with sessions covering industry analysis, shareholder value maximization, and building business relationships. The program then explores creating and protecting value through financial analysis. This includes examining the quality of earnings, interpreting financial statements, understanding cash flow, and preparing financial projections.
Next, the course looks at transaction valuation, focusing on value drivers, various valuation methods, and a DCF case study. The M&A process is thoroughly explored, addressing how to manage a sale, multiple approaches to sale, and the auction process and ESOP. Lastly, the program covers valuation and deal finance, applying valuation concepts, and dissecting the anatomy of deal finance.
Best for: M&A intermediaries serving private companies in the middle market and business owners preparing for an acquisition or sale.
7. Certified Merger and Acquisition Advisor (CM&AA)
Format: onsite and virtual live
Cost: $3,290 online, $4,390 virtual live, $5,490 onsite
Duration: 30 hours onsite and 60 hours online
More info: link
The program covers the entire M&A process, including strategy, valuation, execution, and post-merger integration (PMI). Participants will gain lifelong access to updated online course content, hard copies of materials (for onsite programs), and a global network of experts. The program also includes 10 hours of continued professional development bi-annually.
The course is divided into four modules, including the essentials of M&A, due diligence, valuation, and post-merger integration. These modules cover the full spectrum of the M&A process, addressing challenges and opportunities presented by new technology, cross-border deals, corporate inversions, earn-outs, spin-offs, and more.
Upon completion, participants receive the IM&A Charter, the most internationally recognized designation in the field of M&A.
Best for: mid-management to senior executives, directors, board leaders, advisers, investment bankers, transactional lawyers, and private equity investors. Prerequisites include an academic degree or professional designations such as CPA, CFA, or CAIA.
8. Stanford Business Mergers and Acquisitions Course
Format: in-person
Cost: $15,000
Duration: one week
More info: link
The course offers an in-depth exploration of the entire M&A process through an interdisciplinary curriculum and a week-long team simulation project. This program blends lectures, case studies, class discussions, practical examples, hands-on learning, and guest speaker visits to provide insights and tools for formulating and executing successful M&A strategies.
The course covers essential aspects of mergers, including target selection, valuation and pricing models, deal design, negotiation strategies, accounting and tax planning, and post-merger integration. The curriculum is structured to follow the M&A process sequentially, ensuring a comprehensive understanding.
Participants will enhance their financial valuation skills, formulate M&A strategies, and develop critical competencies for post-merger integration and performance. They will also increase their awareness of common pitfalls in failed M&As.
Best for: senior-level executives and entrepreneurs with at least 10 years of management experience, those in business development, corporate development, finance, and strategic planning, CEOs, general managers, general counsels, and bankers.
Key takeaways
- M&A certification courses are a strategic investment for professionals aiming to advance their careers in finance and corporate sectors by gaining specialized skills in deal structuring, valuation, negotiation, and integration.
- Certification enhances professional credibility by showing expertise in M&A concepts and techniques, making individuals more appealing candidates for senior roles like M&A advisors and investment bankers.
- Certified professionals often earn higher salaries because of their specialized knowledge and ability to add significant value to M&A activities within organizations.
- Select an M&A certification program based on accreditation, comprehensive curriculum, experienced faculty, flexible learning formats, cost-effectiveness, industry recognition, manageable duration, and positive participant reviews.
Investing in M&A certification courses can transform your career in mergers and acquisitions by equipping you with essential skills and knowledge, so you can confidently navigate complex transactions and pursue senior roles in finance and corporate sectors.
A recent Nonprofits Trends Report conducted by Salesforce shows that modern nonprofit organizations face many challenges — from difficulties with raising awareness of the nonprofit’s mission among the community to hurdles with controlling expenses and dealing with increased demand for the organization’s services.
Luckily, most of those challenges can be solved through mergers and acquisitions as a move for strategic growth.
This article helps board members, professional advisors, financial institutions, and other key nonprofit players to learn more about nonprofit mergers and acquisitions. Read on to explore what nonprofits achieve with an M&A deal, what factors nonprofit leaders should consider before entering the deal, and what to include in an M&A nonprofit checklist.
What is a nonprofit merger and acquisition?
Nonprofit mergers and acquisitions refer to the process through which two or more nonprofit organizations combine their operations, assets, and missions to achieve better efficiency, enhance their impact, or address certain financial challenges.
In nonprofit mergers, two nonprofit entities unite to form a new legal entity and operate under one legal name. Two nonprofit organizations combine their assets, liabilities, and programs. For instance, a merger occurs when two health-focused nonprofits merge to offer a comprehensive range of services under one entity, reducing administrative costs and enhancing patient care.
In nonprofit acquisitions, one nonprofit organization takes control of another. The acquiring organization absorbs the assets, liabilities, and programs of the acquired entity, which often ceases to exist as a separate organization, leaving its assets operating under the surviving entity. For instance, an acquisition takes place when a large educational nonprofit acquires a smaller one to expand its reach and incorporate specialized programs into its existing offerings.
Note: Sometimes when nonprofit leaders see an opportunity for collaboration, considering such options as joint ventures, partnerships, or simple contracts instead of a merger or acquisition might be enough.
The difference between the for-profit and nonprofit M&A
Let’s now take a look at how corporate M&A is different from M&A in the nonprofit sector. The main difference criteria are described in the table below.
| Criteria | For-profit entities | Nonprofit entities |
|---|---|---|
| Primary objective | Financial benefit and increased shareholder value | Enhancement of mission effectiveness and community impact |
| Key stakeholders | Shareholders and investors | Board members, donors, beneficiaries, and the community |
| Regulatory environment | Subject to securities regulations and antitrust laws | Subject to charitable organization regulations and Internal Revenue Service (IRS) requirements |
| Valuation approach | Based on financial metrics such as revenue, profit, EBITDA, and market share | Based on mission alignment, program effectiveness, and community impact |
| Funding | Through private equity, bank loans, stock options, and bonds | Through grants, donations, and philanthropic contributions |
| Impact on employees | Focus on cost synergies, which may lead to layoffs and restructuring | Focus on mission synergies, with an emphasis on retaining staff and volunteers for continuity |
Benefits of nonprofit mergers
Merging nonprofit organizations can achieve certain benefits through the deal, such as:
- Increased efficiency
Just like the combination of two for-profit organizations, nonprofit mergers enable nonprofit leaders to reduce redundancies and overhead costs by consolidating administrative functions and sharing office space. Additionally, combining resources such as staff, technology, and facilities can help to deliver services more efficiently.
- Improved financial position
Merging entities can benefit from a broader base of funding sources, reducing dependency on a single revenue stream. This way, a combined organization may gain financial stability, making it more attractive to donors and grantmakers.
- Enhanced services
A nonprofit merger of two organizations can extend the geographic reach and impact of services, allowing nonprofits to serve a larger or more diverse population. Additionally, by combining expertise and best practices, the acquiring entity and target organization can enhance the quality of programs and services offered.
- Mission expansion
In the nonprofit context, when two separate entities have complementary missions, their integration can be a strategic growth opportunity, which might help with a nonprofit’s mission expansion. This results in enhancing the overall impact and effectiveness of nonprofit work and helps make a bigger difference in their communities.
8 considerations for merging nonprofits
Now, let’s explore the main factors both organizations should consider in the nonprofit integration process.
1. Mission alignment
Before initiating the M&A process steps, both nonprofits should ensure they have similar missions and values to create a unified and effective new organization. A key objective behind the merger should be the strengthening of the shared mission rather than its dilution.
Thus, aligning missions helps avoid conflicts and confusion, ensuring that the merged entity can work towards common goals.
2. Complementary strengths
The next step is to identify how each organization’s unique strengths, such as expertise, resources, and networks, can be combined to enhance overall capabilities.
By leveraging complementary strengths, the merged entity can provide a broader range of services and improve its impact. This synergy can lead to innovation and more effective problem-solving.
3. Financial health
Though financial synergies aren’t the primary focus of mergers and acquisitions for nonprofits, it’s still important for both organizations to evaluate their financial stability and health to ensure the merged entity can sustain operations and fulfill its mission. This is to ensure that the potential merger won’t become a bailout but rather improve the financial health of the new entity.
4. Leadership and culture
For a new entity to stay efficient and enhance its mission’s delivery to the community, both organizations should thoroughly assess the compatibility of leadership styles, management practices, and organizational cultures.
Effective leadership is crucial for guiding the organization through the merger process and establishing a positive and cohesive work environment. Cultural alignment helps maintain staff morale and engagement during the transition.
5. Risk assessment
Identify and analyze potential risks associated with the merger, including financial, operational, legal, and reputational risks. A comprehensive risk assessment ensures that the merger process is as smooth and secure as possible.
Based on the risk assessment results, both nonprofits should develop mitigation strategies for identified risks to navigate potential challenges effectively.
6. Long-term strategy
An acquired organization and the acquirer should ensure that they align on a unified long-term strategy.
This involves setting clear goals, defining success metrics, and creating a roadmap for future growth. A shared vision for the future helps in maintaining focus and direction for the merged entity.
7. Stakeholder support
For a successful nonprofit consolidation, both organizations should also ensure the support of key stakeholders, including board members, staff, donors, beneficiaries, and other key nonprofit players.
Engaging stakeholders early and transparently helps build trust and gain buy-in. Their support is critical for the smooth execution and future success of the merger.
8. Due diligence
Just like in the for-profit M&A, the due diligence process remains one of the most critical parts of the nonprofit M&A integration.
Both organizations should conduct a thorough M&A due diligence to uncover any legal, financial, or operational issues that could affect the merger. This includes reviewing contracts, compliance with regulations, and organizational structures. Addressing these issues proactively ensures seamless integration and helps to avoid potential legal, financial, or tax consequences.
Legal and regulatory considerations for merging nonprofits
Reasonably, there are certain legal considerations and legal obligations that merging nonprofits should consider (and address) when entering the deal. Let’s briefly review the main ones.
Board approval
Nonprofits must secure approval from their board of directors before proceeding with an M&A transaction. This ensures that the decision aligns with the organization’s mission and the interests of its stakeholders.
- State laws
Nonprofits must comply with state-specific regulations governing mergers and acquisitions in the nonprofit sector. This may include filing certain documents, obtaining approval from the state attorney general, and adhering to specific procedures to ensure the transaction is legally sound.
- Asset transfer and restrictions
Nonprofits must carefully manage the transfer of charitable assets to ensure they comply with donor-imposed restrictions and state laws. This includes understanding any conditions attached to donated assets and ensuring they are used for their intended purposes post-merger.
- Tax-exempt status
The merging entities must maintain their tax-exempt status. This involves ensuring the combined entity continues to meet the requirements for tax exemption under federal and state law, including adhering to operational and organizational standards set by the IRS.
M&A checklist for nonprofits
Below, we provide an example of a nonprofit merger checklist for you to use for inspiration when drafting the one for your nonprofit mergers and acquisitions.
| Category | Tasks |
|---|---|
| Pre-merger planning |
|
| Due diligence |
|
| Stakeholder engagement |
|
| Integration planning |
|
| Legal considerations |
|
| Post-merger activities |
|
Key takeaways
Let’s summarize the main points from the article:
- M&A in the nonprofit sector refers to the process through which two or more nonprofit organizations combine their operations, assets, and missions to achieve better efficiency, enhance their impact, or address certain financial challenges.
- Top considerations nonprofit leaders should pay attention to before entering the deal include mission alignment, complementary strengths, financial health, leadership and culture, risk assessment, long-term strategy, stakeholder support, and due diligence.
- Additionally, nonprofits should consider legal aspects such as board approval, state laws, asset transfer and restrictions, and the status of a tax-exempt organization.
Amidst the global expectations for the upswing in M&A deal-making activity, let’s delve into factors that help deals succeed. In this article, we focus on the mergers and acquisitions deal team as an integral part of a successful M&A execution process.
What is the M&A department structure? What M&A roles do those specialists perform? How can the most common challenges of building an effective M&A team be handled? Find all the answers in this article.
Understanding M&A teams
The M&A deal team is a group of specialists responsible for the transaction’s execution, coordination, and closure.
This team typically includes professionals from different industries and business areas with diverse expertise to handle various aspects of the deal, ensuring a comprehensive and well-coordinated process.
Importance of mergers and acquisitions deal teams
Each specialist on the M&A team structure of merging companies plays an important role in leading the deal to success: from initial strategic planning stages to the due diligence phase and post-merger integration.
Among the top benefits that a well-coordinated and efficient M&A deal team brings to the transaction are the following:
- Expertise and specialized knowledge
M&A teams bring together professionals with specialized knowledge in finance, law, tax, M&A tools, and industry-specific insights. Their expertise and area-specific skill sets ensure that all aspects of the deal are competently managed, from choosing the business valuation model to handling legal compliance.
- Improved project management
Effective project management is mandatory for successful deal execution since it helps to coordinate multiple stakeholders, manage timelines, and effectively allocate resources. M&A teams ensure that all parties are aligned and work towards common objectives. They track progress and promptly address issues that arise. This structured approach keeps the transaction on schedule and within budget.
- Enhanced collaboration between the two companies involved
The M&A department facilitates better team collaboration between two organizations by managing cultural differences and establishing clear communication channels. This is especially important considering that insufficient communication often leads to problems when combining two organizational structures into one. That’s exactly what happened between the Daimler and Chrysler merger in 1998, which resulted in the failed deal.
- Strengthened accountability
Having a well-coordinated team involved in the whole process of deal execution means that everyone knows their area of responsibility and is accountable for it. They track performance against milestones and objectives, ensuring tasks are completed effectively. And regular reporting and thorough documentation help maintain transparency. This, in turn, facilitates deal success.
Roles in an M&A team: 6 key groups
Among all the specialists involved in the deal, we define 6 main stakeholder groups that comprise an M&A team structure. These groups can be divided into those responsible for the leadership in the merger process, those in charge of its execution, and those that perform an advisory role.
Learn more about each of these groups and roles below.
| Area of responsibility | Stakeholder group |
|---|---|
| Leadership |
|
| Execution |
|
| Advisory |
|
1. C-suite and investment committee
This group typically consists of the CEO, CFO, and other top executives, along with members of the board or a dedicated investment committee. It’s also often referred to as an executive team or steering committee.
An executive team is the most influential constituent in the decision-making process. What’s more, 36% of dealmakers believe that the lack of strong senior management can lead to deal failure.
Among the top responsibilities are the following:
- Assessing the strategic fit with a potential target business and possible synergies of the deal
- Approving the allocation of resources
- Setting financial and strategic objectives
- Ensuring that the transaction aligns with the company’s long-term goals
- Driving the effective collaboration between two businesses
2. Business unit leadership
The business unit is typically accountable for operating the new organization after the deal completion, meaning it’s more involved in the latter stages of the transaction. However, they’re also often engaged in the early phases of the deal, which ensures alignment with strategic objectives.
Business unit leadership is mostly responsible for the following aspects of the deal execution:
- Providing critical operational insights
- Ensuring that the deal aligns with the practical realities of the business
- Assessing the potential impact of the deal on the business operations
- Identifying areas for growth after acquiring a target organization
- Monitoring actions of competitors
- Advising the executive team on when it’s a better time to act
3. Corporate development
The corporate development team drives the M&A process and is responsible for identifying, evaluating, and executing potential deals. The corporate development team is typically involved in each stage of the deal. Additionally, it plays a key role in aligning the transaction with corporate strategy and ensuring a smooth execution.
Specialists from the corporate development department interact with potential targets most often. That’s why they have a thorough understanding of its organizational structure and potential synergies it might bring to the new firm.
The wide range of responsibilities includes the following:
- Developing and managing the M&A pipeline
- Conducting market research and screening potential targets
- Performing preliminary valuations
- Completely managing the due diligence process
- Developing deal structures and preparing the necessary documentation
- Preparing for bidding and negotiation
Additional read: Learn more about typical M&A salaries in our dedicated article.
4. Transaction lead
The transaction lead, often a senior member of the corporate development team or a dedicated M&A specialist, is the specialist who oversees the day-to-day management of the deal process. This individual acts as the central point of contact, coordinating efforts across all involved parties and ensuring that timelines and milestones are met.
Typically, a transaction lead is most involved in the finalization of the deal and further integration of an acquiring company and a target. However, it’s recommended that a transaction lead engages in the process earlier, since he or she can significantly help identify challenges, risks, and opportunities of the specific potential deal.
The key responsibilities include:
- Managing due diligence
- Facilitating communication between internal teams and external advisors
- Addressing any issues that arise during the transaction
5. Integration management office (IMO)
IMO is completely accountable for the post-merger integration process: from the planning stage to its execution. Their role is crucial in maintaining business continuity, managing change, and ensuring that the combined entity operates effectively from day one.
Specialists from the integration management office work closely with business unit leaders and other stakeholders to ensure a seamless transition, mitigate risks, and realize expected synergies. Though the transition comes only after the deal completion, the PMO is involved in the process early, since the integration planning starts early as well.
The IMO team responsibilities typically include:
- Developing detailed integration plans
- Covering aspects such as organizational structure, systems and processes, and culture
- Ensuring smooth communication and transparency between all the stakeholders at each integration stage
- Handling cultural integration and ensuring retention of key employees
6. External advisors
Besides internal teams that are actively involved in the M&A process, deal sides also hire outside specialists and advisors who can share their expertise in specific areas. Such specialists typically include:
- Attorney or legal counsel
Legal advisors typically provide essential legal advice, ensure compliance with relevant laws and regulations, and draft and review contracts and agreements. They handle due diligence, mitigate legal risks, and help negotiate the legal terms of the transaction to protect their client’s interests.
- Financial analyst or advisor
Financial advisors assess the financial health of the target company, provide valuation services, and analyze the financial implications of the deal. They assist in structuring the transaction to maximize financial benefits and may also help in securing financing if required.
- Wealth manager or advisor
Wealth managers or advisors help individual stakeholders, such as business owners, understand and manage the personal financial impact of the M&A transaction. They offer guidance on tax planning, investment strategies, and long-term financial planning to optimize the personal financial outcomes of the deal.
- Investment banker
Investment bankers facilitate the whole M&A process by identifying potential targets or buyers, advising on deal structure, and assisting in negotiations. They provide expertise in valuation and market analysis and often help with capital raising to finance the transaction.
5 tips for building an effective M&A team
An effective and well-coordinated M&A team is one of the deal success factors. To facilitate the success of your transaction with the help of a high-performing deal team, we recommend following these tips:
Ensure the team includes members with different expertise, such as finance, legal, operations, and strategic planning. This diversity allows for efficiently addressing industry-specific areas of the deal and boosts decision-making during the M&A process.
Assign specific roles and responsibilities to each team member and establish clear reporting structures. This clarity helps in avoiding confusion and ensures accountability throughout the whole M&A process.
Strong leadership is essential for maintaining efficiency and clarity of all the processes during the deal execution. Appoint a competent leader who can guide the team, make critical decisions, and keep the project on track.
Establish an environment of open and honest communication among all team members. This transparency helps in identifying and addressing issues promptly, ensuring that all specialists are aligned and informed.
Invest in the continuous training and development of team members to keep their skills up-to-date and relevant. This ensures that the team is capable of handling unexpected challenges and complexities that arise during the M&A process.
Challenges in M&A team dynamics
Now, let’s briefly look at what obstacles can occur within the M&A team and how they can be handled.
Conflicts within the team
Often, team members may have different opinions on the strategic direction of the merger or acquisition. Additionally, when M&A specialists come from different organizational levels, backgrounds, and, even more importantly, corporate cultures, it can often result in conflicts when striving for decision-making.
How to solve it?
- Ensure clear role definition
Clearly define each role and their area of responsibility to avoid power struggles and confusion.
- Provide specific conflict resolution mechanisms
Develop and communicate clear processes for addressing conflicts, including mediation and escalation procedures.
Communication gaps
When different specialists from the acquiring company and the target form one M&A team, they typically come from different locations and time zones, often speak different languages, and can have completely different approaches to deal management. At this stage, communication gaps often appear, leading to corporate clashes.
How to solve it?
- Ensure transparent information sharing
Create a centralized repository for all relevant documents and updates that all team members can access.
- Provide regular updates
Schedule regular updates and meetings to ensure all team members are on the same page. Use video conferencing tools to bridge geographical gaps.
Pressure to meet deadlines
If a team lacks resources, it might be difficult to meet the outlined deadlines. What’s more, a rush in reaching the targeted deadline date can often lead to oversight and errors in the processes.
How to solve it?
- Allocate adequate resources
Thoroughly review all the processes where the M&A team needs to be involved, and based on that, ensure each process has enough specialists to perform. While small deals might need a dozen specialists to handle all M&A stages, megadeals might require a large department of professionals to be effective.
- Initiate stress management programs
Implement stress management programs and provide support for team members to prevent burnout.
- Be realistic with deadlines
And be ready to adjust them. Set realistic timelines that consider potential delays and ensure sufficient time for due diligence.
Key takeaways
- The M&A deal team refers to a group of specialists responsible for the transaction’s execution, coordination, and closure.
- Typically, all the professionals involved in the deal planning, execution, and integration can be divided into 6 main stakeholder groups: executive team, business unit leadership, corporate development, transaction lead, integration management office, and external advisors.
- When assembling an effective M&A deal team, it’s recommended to look for people with diverse skill sets, provide strong leadership, clearly define roles and responsibilities, establish transparent communication, and ensure ongoing training and development.
While global M&A practitioners anticipate a rebound in deal activity this year, let’s focus on the essentials that help to make deals work.
In this article, we’ll discuss the meaning of a term sheet in M&A transactions, its key components, benefits, and common pitfalls when drafting it. Additionally, you’ll get an M&A term sheet example to lean on when creating the one for your deal.
What is a term sheet in M&A?
A term sheet in M&A refers to the non-binding agreement between the target company and the prospective buyer that outlines the key terms and conditions of a potential transaction.
A term sheet provides a framework for the final agreement and helps to ensure that both parties have a sense of security and agreement on the crucial deal terms before investing significant time and resources into due diligence and final negotiations.
Note: Though being a non-binding document, a term sheet, however, prohibits parties from disclosing confidential information and secures its exclusivity.
The term sheet stage typically occurs at the beginning of the negotiation process and prior to due diligence.
Term sheet meaning vs. Letter Of Intent (LOI) meaning
On the surface, LOI and term sheet might seem similar as both are non-binding transaction documents that imply defining key deal terms and agreements. However, they are still different. Let’s briefly see how exactly they differ in the table below:
| Task | Letter of Intent | Term sheet |
|---|---|---|
| Level of detail | More detailed, often including legal terms and conditions | Less detailed, providing only key deal terms |
| Formality and structure | More formal, in the form of a structured letter with detailed sections | Less formal, often presented in bullet points |
| Negotiation stage | Later stage, typically after a term sheet is signed | Early stage, to ensure alignment on key terms before proceeding with LOI |
| Intent and commitment | Signal a more serious intent to move forward with due diligence and finalize the deal | Indicate initial agreement and willingness to negotiate |
Importance of M&A term sheets
Term sheet negotiations in M&A are essential for ensuring efficient due diligence and facilitating successful deal closure. Among the advantages of bringing term sheets to the M&A table are the following:
- Solid groundwork for M&A negotiations
Term sheets outline the key deal terms which gives both sides a clear starting point for negotiations. This way, an acquiring company and a target understand each other’s expectations and priorities early on, which, in turn, reduces the possibility of misunderstandings and sets a constructive tone for the discussions.
- Framework for due diligence
Clearly defining the main deal terms helps to focus on the important things during the due diligence process. Such a structured approach can also uncover potential issues early, allowing for informed decision-making. As a result, it can prevent surprises and delays later in the transaction.
- Clarity and alignment
The term sheet ensures that both sides are aware of their key zones of responsibility at the negotiation stage and are also on the same page in the process. Such an attitude fosters trust and cooperation between the buyer and seller and facilitates smoother progress toward finalizing the deal.
- Enhanced efficiency
With a term sheet in place, M&A process steps can proceed more straightforwardly. It helps streamline negotiations and decision-making by focusing discussions on agreed terms. This, in turn, can save both parties a lot of time and resources.
- Risk mitigation
By ensuring both parties are on the same page, term sheets can also help reduce potential risks and major deal-breakers early in the M&A process. When all the key deal terms are outlined, there’s less possibility of deal failure because of disagreements on essential issues or gaps in communication.
10 key components of M&A term sheets
Let’s now list term sheet essentials typically included in the agreement.
1. Purchase price
The first thing to include in a term sheet is a pre-agreed purchase price. This section specifies the initial deal price the sides agree on (which can still be changed based on due diligence findings).
Sometimes potential buyers also add a working capital peg. It means that by the time of deal closure, a seller must provide a buyer with an agreed-upon amount of working capital.
2. Payment structure
This section is about a structure of payment that will be used in the transaction.
This can be a stock purchase, all-cash transaction, stock-for-stock exchange, earn-out, etc. It can also be a combination of several payment structures, which is also clearly outlined in a term sheet.
Note: Learn what happens to your stock if a company is bought in our dedicated article.
3. Due diligence
The due diligence section typically outlines the key concepts of a due diligence process in a proposed transaction.
It might include the scope of the due diligence investigation, its terms and deadlines, and other details such as what key actions each side should perform to ensure a successful review.
4. Escrow
Sometimes a buyer may request a seller for an escrow that’s typically withheld from the purchase price. Escrow aims to safeguard the buyer from any misinterpretation, breach of confidential data and warranties, or undisclosed liabilities.
The amount of such a deposit depends on the deal size and type but typically estimates from eight to fifteen percent of a purchase price and is retained for about two years.
5. Representations and warranties
This is about basic assurances and guarantees that each party makes to the other.
By this section in a term sheet, both sides confirm that they are honest with each other and transparent about their operation and financial performance.
Some of the representations and warranties that are typically included in a term sheet are intellectual property, financial information, organizational data, litigation, environmental liabilities, and contracts and agreements.
6. Confidentiality and exclusivity
This is about provisions regarding the confidentiality of the discussions and whether there will be an exclusive negotiation period.
Confidentiality means that all sensitive data such as financial statements or legal documents are kept confidential by both parties.
The exclusivity provision means that a seller is restricted from entering into negotiations with other potential buyers and should keep the ordinary course of operations between the time the term sheet is signed and the defined end day of the exclusivity period (for instance, during 60 days).
This section of a term sheet also refers to definitive agreements and often has a binding nature.
7. Employee matters
Often, deal participants define in a term sheet how the key employees and employee benefits will be managed in the post-merger. This helps to reduce the risks of failure in the post-integration period, which is especially relevant considering that dealmakers attribute a large portion of M&A success to post-close integration.
Note: Learn about change management during mergers and acquisitions in our dedicated article.
8. Governing laws
The governing law provision specifies the jurisdiction under which the term sheet and the eventual definitive documents will be governed.
9. Closing conditions
As simple as it is, this section outlines under which conditions the deal will be considered closed.
It lists key milestones and deadlines and also defines the target date for closing mergers and acquisitions transactions.
10. Termination and indemnification
This provision details what party will be responsible for certain liabilities post-closing and under which conditions the deal can be terminated.
It also includes information about how indemnification claims will be managed.
Common pitfalls in drafting term sheets
Certain challenges may occur when drafting a term sheet. Let’s briefly review the main ones and see how they can be potentially solved.
- Lack of clarity
The nature of a term sheet calls for its clarity. Any ambiguities can lead to misunderstandings and disputes later. To avoid that, ensure all the key terms are clearly defined. Pay attention to the language used — there should be no phrases that can be interpreted in multiple ways. For best results, engage a legal counsel to assist with drafting a term sheet.
- Overlooking due diligence
Failing to outline the scope and timeline of due diligence can result in delays or incomplete investigations. To avoid that, specify the due diligence process in the term sheet, including the information required, the timeline, and who will bear the costs. This sets clear expectations for both parties.
- Inadequate confidentiality and exclusivity provisions
Without proper confidentiality and exclusivity clauses, sensitive data may be leaked, or a seller might engage with other potential buyers, undermining the deal. To mitigate such risks, ensure that confidentiality agreements and exclusivity periods in the term sheet are clearly defined and each party understands the liabilities coming with a violation.
- Failure to provide a detailed timeline
Without a clear timeline, the deal process can drag on, leading to frustration and potential deal fatigue. To avoid this, outline a detailed timeline for the completion of key milestones: due diligence, signing of the definitive agreement, and closing. Set realistic deadlines to keep the process on track.
Legal weight of term sheets
Generally, a term sheet is a non-binding document with minimal legal weight.
However, certain components of a term sheet are of a binding nature and have a bigger legal weight. These refer to such provisions as confidentiality, exclusivity, and governing laws.
If a term sheet includes an expenses clause that specifies what party is responsible for the expenses incurred during the negotiation process, it also has a legal power.
Merger and acquisition term sheet template
If you’re looking for an M&A term sheet example to draft the one for your deal, consider the example below. Please bear in mind that this is just an example of what can be included in a term sheet to use for inspiration. Consider the specifics of your case when creating the one for your deal.
Key takeaways
Let’s briefly summarize the main points from the article:
- A term sheet in M&A refers to the non-binding agreement between the seller and the buyer that outlines the key deal terms prior to proceeding with the due diligence.
- The main components of a term sheet include purchase price, payment structure, due diligence, escrow, representations and warranties, confidentiality and exclusivity, employee matters, governing laws, closing conditions, and termination and indemnification.
- Though a term sheet is generally a non-binding document, certain components of it are of a binding nature. These are confidentiality, exclusivity, and governing laws.
Cybersecurity is a critical part of merger and acquisition strategies — 73% of respondents to a Gartner survey say an undisclosed data breach or serious cybersecurity issues are an immediate deal breaker in their firm’s M&A plans.
This article provides insights into cybersecurity mergers and acquisitions by analyzing key trends in the M&A cybersecurity sector and describing the top 15 cybersecurity acquisitions in 2023-2024.
Overview of 2023 cybersecurity M&A trends
Let’s explore the key M&A cybersecurity trends in 2023 based on the analysis conducted by SecurityWeek.
There was a decline in the total number of cybersecurity M&A deals announced in 2023 compared to the previous year.
While North American companies continue to dominate the cybersecurity M&A landscape, there has been a decrease in the number of deals involving North American companies. Conversely, there has been an increase in deals involving companies located in Asia and Oceania, particularly in Israel and Australia.
There has been a significant number of deals involving managed security solutions providers (MSSPs), including both pure cybersecurity providers and companies offering additional products and services.
There has been an increase in deals involving companies that offer GRC solutions and services, including audit, assessment, vulnerability management, penetration testing, attack surface management, and cyber insurance.
Private equity companies have announced a notable number of cybersecurity acquisitions in 2023, with the number of deals doubling compared to the previous year.
Government contractors have been actively participating in cybersecurity-related M&A deals, targeting both pure-play cybersecurity firms and companies offering other products and services in addition to cybersecurity.
While identity and network security remain prominent areas of focus in cybersecurity M&A, there has been a decrease in deals involving data protection, cloud and container firms, and application security. Incident response, however, has seen an increase, driven by companies expanding their capabilities and private equity firms seeing opportunities in this segment.
Companies offering highly focused cybersecurity services, including those related to blockchain, quantum, payment, PR, healthcare, hardware, certification, and automotive solutions, have also experienced a significant increase in M&A activity.
Despite certain challenges, cybersecurity M&A deals are expected to grow in 2024. The need to buy other firms can be explained by the numerous benefits of mergers and acquisitions, but organizations acquire cybersecurity companies mainly for two reasons:
- Advanced capabilities
This includes cutting-edge technologies and expertise, which are essential for organizations to enhance their defenses against evolving cyber attacks, such as phishing or ransomware. By acquiring firms with innovative solutions and specialized skills, companies can strengthen their security posture and stay ahead of emerging risks.
- Market consolidation
As the cybersecurity sector continues to evolve rapidly, companies seek to consolidate their market position by acquiring competitors or complementary firms. This consolidation allows organizations to expand their product offerings, penetrate new markets, and achieve economies of scale.
Top 5 cybersecurity mergers in 2023
First, let’s review the most successful mergers and acquisitions examples that took place in 2023.
1. Cisco and Splunk
Deal size: $28 billion
Cisco, a digital communications conglomerate, announced its acquisition of Splunk, an observability and cybersecurity company, in September 2023. This is an all-cash deal valued at $157 per share.
This acquisition aims to enhance Cisco’s cybersecurity capabilities by integrating Splunk’s data analysis and security software. Together, companies plan to use generative AI to simplify complex tools for non-technical users. The transaction was completed in March 2024.
With the close, Cisco has created a unique set of solutions for networking, security, and operations executives in the market. When you add that to their channel and AI investments, customers should be considering the higher levels of business value that can now be unlocked.
Stephen Elliot
Group Vice President at IDC
2. Thales and Imperva
Deal size: $3.6 billion
French aerospace and defense company Thales announced its acquisition of Imperva, a software and services provider specializing in addressing cyber threats, in July 2023. It was finalized in December of the same year, even earlier than first expected.
This acquisition aims to bolster Thales’ cybersecurity portfolio by integrating Imperva’s expertise in data and application security. The deal underscores Thales’ commitment to enhancing its digital security offerings.
3. Thoma Bravo and ForgeRock
Deal size: $2.3 billion
Thoma Bravo, a private equity firm, acquired ForgeRock, a digital identity management company, in August 2023. This was an all-cash deal valued at $23.25 per share.
The acquisition is a part of Thoma Bravo’s strategy to expand its portfolio in the cybersecurity and digital identity sectors. ForgeRock’s solutions will complement Thoma Bravo’s existing investments in the cybersecurity space. The deal also emphasizes the growing importance of identity management in comprehensive cybersecurity strategies and a general need for new approaches in identifying and addressing cyber vulnerabilities in cloud security.
4. ProofPoint and Tessian
Deal size: N/A
ProofPoint, a subsidiary of Thoma Bravo and an enterprise security provider, closed an acquisition of Tessian, a cybersecurity company specializing in email security, in December 2023.
This acquisition aims to enhance Proofpoint’s capabilities in preventing human error-related security breaches through Tessian’s advanced machine-learning technology. The deal reflects Proofpoint’s strategy to strengthen its portfolio in people-centric security solutions.
Tessian’s innovative technology will further enhance Proofpoint’s threat and information protection platforms by adding powerful layers of AI-powered defense that address risky user behaviors, including misdirected email and data exfiltration.
Darren Lee
EVP and GM of Proofpoint’s Security Products and Services
5. CrowdStrike and Bionic
Deal size: $350 million
CrowdStrike, a cybersecurity technology company, announced its acquisition of Bionic, a leader in Application Security Posture Management (ASPM), in September 2023.
Through this acquisition, CrowdStrike aims to extend its Cloud Native Application Protection Platform (CNAPP) with ASPM. It’ll help to bolster CrowdStrike’s platform by integrating Bionic’s advanced application security and visibility solutions.
Additional read: If you want to learn more about typical mistakes made in the M&A process, learn from the biggest failed mergers in our dedicated article.
Top 10 cybersecurity M&A deals in 2024
Now, let’s focus more on what’s currently happening in the cybersecurity M&A market by exploring the 10 most interesting cyber security sector deals in 2024 so far.
1. Delinea and Authomize
Deal size: TBA
Delinea, a leading provider of solutions that extend Privileged Access Management (PAM), announced its acquisition of Authomize, a pioneer in the identification and reduction of identity-based cybersecurity threats in the cloud environment, in January 2024.
The deal highlights Delinea’s commitment to enhancing its cybersecurity offerings, particularly in the realm of identity security.
Together, we will greatly expand and enhance privilege security across the enterprise, addressing the rising identity threats across the industry.
Gal Diskin
Authomize CTO
2. Snyk and Helios
Deal size: TBA
The deal between two Israel-based companies was announced in January 2024.
Snyk, a developer-focused security company, acquired Helios, a startup that helps to address developers’ microservices in production, to enhance its cloud-to-code risk visibility capabilities.
Snyk will integrate Helios’ comprehensive runtime data collection and analysis capabilities into the Snyk Developer Security Platform. This integration aims to offer customers a complete overview of all applications throughout the entire software development lifecycle, ensuring enhanced security from development to deployment.
3. Trustwave and Chertoff
Deal size: $205 million
Chertoff’s affiliate, MC² Security Fund, announced the completion of the acquisition of Trustwave, a global managed security services provider, in January 2024.
This strategic move aims to leverage Chertoff’s extensive experience in cybersecurity and national security to enhance Trustwave’s market position and growth trajectory. The acquisition allows Trustwave to focus more on its core services, including managed detection and response (MDR) and managed security services (MSS), while benefiting from Chertoff’s industry insights and connections.
4. Haveli and ZeroFox
Deal size: $350 million
ZeroFox, a cybersecurity firm specializing in external cybersecurity solutions, announced it would be acquired by Haveli Investments, a tech-focused private equity firm, in February 2024. The deal is set to be all-cash, valued at $1.14 per share.
As a result of the acquisition, ZeroFox was expected to become a privately held company, with its stock being delisted from the Nasdaq Global Market. Together, companies expect to bring new improved experiences and cybersecurity solutions for their customers.
The deal was completed in May 2024.
5. Resilience and BreachQuest
Deal size: TBA
A cyber risks management firm, Resilience, announced its acquisition of BreachQuest, a company specializing in incident response technology, in February 2024.
The Resilience’s reason for the transaction is to bolster incident response mechanisms against business email compromise attacks. The deal is conducted in the time of an evolving digital workspace and cloud-based productivity apps, which only highlights the need to secure these environments amidst escalating risks.
6. Flare and Foretrace
Deal size: TBA
Flare, a Canadian cybersecurity startup, announced its acquisition of Foretrace, an American data exposure company, in March 2024.
Together, the firms hope to enhance Flare’s capabilities in identifying and mitigating external cyber security risks by integrating Foretrace’s advanced attack surface management technology. The deal underscores Flare’s commitment to providing comprehensive digital risk protection solutions.
Bringing Foretrace into the Flare family further broadens our capabilities for collecting emergent threat data while also deepening our expertise, ensuring that we can be in a great position to lead the way in TEM.
Norman Menz
CEO of Flare
7. Zscaler and Avalor
Deal size: $310 million
A giant in the cybersecurity industry, Zscaler announced its acquisition of Avalor, a startup from Israel with a focus on AI-driven security, in March 2024. The financial terms of the acquisition were not disclosed yet, however, the deal is reportedly estimated to reach about $310 million.
With this acquisition, Zscaler hopes to benefit from Avalor’s AI capabilities in the cybersecurity sector.
Zscaler operates the world’s largest security cloud with the most relevant data to train security-specific large language models (LLMs) and with the Avalor acquisition, we can more effectively identify vulnerabilities, while predicting and preventing breaches.
Jay Chaudhry
CEO and founder of Zscaler
8. BeyondTrust and Entitle
Deal size: $100-150 million
In April 2024, BeyondTrust, a company specializing in intelligent identity and access security, announced its acquisition of Entitle, a provider of privilege management solutions that focuses on just-in-time (JIT) access and identity governance across cloud environments.
The financial terms of the deal have not yet been disclosed, but it is reportedly valued at around $100-$150 million.
This acquisition is part of BeyondTrust’s strategy to enhance its capabilities in privileged access management (PAM) and expand its offerings in identity governance and administration (IGA) across the entire cloud estate.
9. KnowBe4 and Egrees
Deal size: TBA
KnowBe4, a world security awareness training and simulated phishing platform, announced its acquisition of Egrees, an AI-driven email security company, in April 2024. Specific terms of the acquisition have not yet been disclosed.
The reason behind the deal is to bring together the email security technologies of Egrees and the security training platform of KnowBe4, which expectedly will help a combined company to expand and enter new markets.
By acquiring Egrees, KnowBe4 expects to offer a single platform that “aggregates threat intelligence dynamically by offering AI-based email security and training that’s automatically tailored relative to risk”.
10. LogRhythm and Exabeam
Deal size: TBA
LogRhythm and Exabeam, both leaders in cybersecurity, announced their intention to merge in May 2024.
LogRhythm focuses on helping security teams convert scattered data into reliable insights, while Exabeam specializes in AI-driven security operations. By joining forces, they want to enhance their AI-based security capabilities.
The merger is expected to be finalized by the third quarter of 2024, pending regulatory approval and standard closing conditions.
Why cybersecurity is attractive to investors in 2024
Despite the relative decrease in the number of mergers and acquisitions in the cybersecurity industry in 2023, this sector is now one of the most attractive to investors, and here’s why:
- Growing digital transformation
Modern businesses are increasingly adopting digital technologies to improve efficiency, productivity, and customer engagement. Digitalization of most M&A steps is a common thing now, which, at the same time, requires searching for new solutions to address possible cybersecurity vulnerabilities that could affect a business’s critical infrastructure.
- Increasing frequency and sophistication of cyberattacks
Investment in cybersecurity is becoming a trend amidst the rising number of cyberattacks in the world. Apple states that in 2023 there were 70% more cyberattacks compared to 2022. This is especially disturbing considering the skyrocketing annual cost of cybercrime worldwide, which is expected to hit $13.82 trillion by 2028.
- Regulatory compliance and legal requirements
Governments worldwide are enacting stringent data protection regulations, such as the General Data Protection Regulation (GDPR) in Europe and the California Consumer Privacy Act (CCPA) in the U.S. Companies must invest in cybersecurity to comply with these laws and avoid fines.
- Market growth and financial opportunities
Cybersecurity-related deals stood for a great part of deal-making in tech in the Q1 of 2024. This demonstrates a rising interest (and demand) in cybersecurity solutions among business owners and gives hope for attractive financial accomplishments and a bright future for cybersecurity M&A in general.
Key takeaways
- Cybersecurity mergers and acquisitions experienced a decline in 2023 but are gaining momentum in 2024 so far.
- The largest cybersecurity acquisitions in 2023 included deals between Cisco and Splunk, Thales and Imperva, and Thoma Bravo and ForgeRock.
- In 2024, some of the most interesting cybersecurity deals included Delinea and Authomize, Haveli and ZeroFox, Zscaler and Avalor, and more.
