How Does M&A Actually Work? What Happens in the 6 Months Between Deal Announcement and Close
M&A is not about the headline number. It is about the 200-person team working 80-hour weeks for six months, the 40,000 documents in a data room, and the 12 things that kill deals in due diligence.
When a merger is announced, the press release mentions the deal value, the strategic rationale, and a quote from each CEO about "exciting opportunities." It does not mention the 18 months of secret negotiations, the three times the deal nearly fell apart, or the 40,000 documents both sides are about to review in a virtual data room.
Phase 1: Strategic Rationale and Target Identification (Months 1-3)
Acquisitions begin with a problem the acquirer is trying to solve: enter a new geography, acquire a technology, eliminate a competitor, or buy revenue growth that organic means cannot deliver fast enough. The M&A team — usually 3-5 people internally, supported by an investment bank — screens potential targets against strategic criteria, financial thresholds (revenue size, margin profile, growth rate) and valuation parameters.
Most targets are ruled out before first contact. Of those approached, most negotiations fail at LOI (Letter of Intent) stage — the parties cannot agree on a price range before full due diligence begins.
Phase 2: Due Diligence (Months 3-5)
Due diligence is the systematic verification of everything the seller has represented. Financial DD examines three to five years of audited accounts, management accounts, customer concentration, revenue recognition policies and working capital dynamics. Legal DD examines contracts, litigation, IP ownership and regulatory compliance. HR DD examines key person dependencies, compensation structures and cultural fit. Commercial DD validates the market opportunity and competitive positioning.
The data room typically contains between 20,000 and 60,000 documents. Deal teams of 50-200 people review it simultaneously. Findings from DD feed back into pricing, deal structure and contract representations and warranties.
The 12 Things That Kill Deals
Price gap between buyer and seller expectations. Hidden liabilities uncovered in DD. Key person departures during the process. Regulatory block — antitrust authorities rejecting the combination. Material adverse change in the target's business. Integration complexity that exceeds initial estimates. Cultural incompatibility. Financing conditions that cannot be met. Board disagreement on the acquirer side. Competing bid from a third party. Seller getting cold feet. And most commonly: both parties exhausting each other in negotiations until one side walks.
Key Takeaways
- M&A typically takes 6-18 months from first contact to close — far longer than press announcements suggest
- Due diligence is where deals live or die: hidden liabilities and revenue quality issues are the primary deal killers
- Integration planning should begin during DD, not after close — most M&A value destruction happens in Year 1 post-close
- Price is rarely the only variable: structure, earn-outs, warranties and management retention terms matter as much
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