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A merger and acquisition (M&A) could be a potential way to grow your business. Whether you’re looking to expand into new markets, acquire valuable talent or technology, or strengthen your market position, the right deal may be able to help you reach your goals.
But mergers and acquisitions don’t happen overnight. Beyond negotiating the deal itself, there could be a lot of moving parts to consider, from assessing your financial readiness to making an M&A due diligence checklist to managing the post-merger integration.
If you’re mulling a merger or acquisition, this guide includes seven M&A best practices that could help you avoid common pitfalls and potentially set up your business for success.
What Is the Difference Between a Business Merger and an Acquisition?
What is meant by "merger and acquisition?" M&A is a broad term for two approaches that businesses may use to combine into a single company. While sometimes used interchangeably, the difference between a merger and an acquisition is largely how the deal is structured and who controls the business afterward.
A merger happens when two businesses decide to combine and form a single company. Mergers may be a mutual decision between businesses that are similar in size and want to achieve shared goals, such as expanding into new markets, potentially reducing costs, or pursuing growth together.
An acquisition occurs when one business buys another one, perhaps to acquire the other company’s customers, talent, products, technology, or market presence. In this scenario, the buyer may retain control of the business, while the acquired company may continue operating under its existing brand or become part of the buyer’s business. In some small-business acquisitions, the buyer is also the larger or more established company.
This chart further explains the differences between a merger and an acquisition:
| Merger | Acquisition | |
| Transaction | Two businesses join together to become one company. | One business buys another. |
| Management of business | Leadership may be shared or combined. | The buyer may take ownership and control. |
| Status of acquired business(es) | The businesses combine into a single organization. | The acquired business may keep its brand or be fully integrated into the buyer’s business. |
Ultimately, both approaches could help businesses scale, but the right approach could largely hinge on your long-term goals.
Before a merger or an acquisition, consider the following best practices.
1. Perform a Financial Health Check
Before a merger or acquisition may move forward, both businesses may want a clear picture of their financial health. A thorough M&A financial assessment may help determine whether the deal is financially viable and could uncover potential issues that could affect its long-term success.
One of the first areas buyers may evaluate is liquidity, or how easily a business may access cash to meet its short-term obligations. A healthy cash position could help give the business the flexibility to fund day-to-day operations, cover transaction costs, and invest in integrating the two companies. If cash is tight, even a profitable business may struggle to manage the demands of a merger or acquisition.
Liquidity is just one part of the picture. A financial health check may also consider:
- Cash flow and available working capital
- Revenue, profit margins, and profitability
- Recurring expenses, existing debt, and repayment obligations
- Assets and liabilities
- Customer concentration and recurring expenses
- Revenue forecasts
Spotting potential red flags may be equally as important. High levels of debt, inconsistent cash flow, declining sales, or incomplete financial records may signal that additional due diligence is needed before moving forward.
| Positive Signs | Potential Red Flags |
| Consistent cash flow | Cash-flow shortages |
| Healthy profit margins | Declining profits or sales |
| Manageable debt | High or growing debt |
| Accurate and organized financial records | Missing or incomplete records |
| Diversified customer base | Heavy reliance on one customer |
2. Be Transparent With Your Team
A merger or acquisition may create uncertainty for everyone involved, not just leadership. Employees may wonder whether their jobs, responsibilities, or workplace will change. Without a clear M&A communication strategy, rumors may circulate, potentially affecting morale, productivity, and employee retention.
You may not want to share every detail as soon as it’s available. Instead, consider communicating openly about what you know — and what you don’t know yet, and when employees might expect an update. This level of transparency could help build trust, even when there is much uncertainty.
As the deal moves forward, your employee communication during the merger may continue to evolve.
| M&A Stage | What to Consider Communicating |
| Before the announcement | Prepare leaders and managers with consistent messaging so they’re ready to answer questions when the news is shared. |
| When the deal is announced | Explain why the merger or acquisition is happening, what employees might expect next, and when you’ll share additional updates. |
| During integration | Consider providing regular updates on organizational changes, new processes, timelines, and any decisions that might affect employees’ daily work. |
| Post-integration | Continue communicating about progress, celebrate milestones, and create opportunities for employees to ask questions and share feedback. |
It could also be important to try to strike the right balance. Sharing major changes too early could create unnecessary uncertainty, while waiting too long could make employees feel left out or caught off guard. Regular updates — even if they're just to say there’s nothing new to report yet — could help build trust and potentially reduce speculation. When employees understand what’s happening and why, they may be more likely to stay engaged and support the transition.
3. Define Your Goals and Measures of Success
Before you start evaluating businesses or negotiating terms, consider taking a step back and asking a straightforward question: Why are we doing this?
One reason a merger or acquisition could fall short of expectations is because the M&A goals may not be clearly defined. Before you get too far into the process, try to confirm that everyone is on the same page about why you’re pursuing the deal. Strong M&A goals are meant to be specific, measurable, and agreed upon by everyone involved in the decision-making process. They may also help support your broader business strategy.
Once you’ve defined your goals, consider how to measure M&A success factors. You may want to ask questions like:
- What does success look like six months or one year after the deal closes?
- Which metrics could tell us we’re making progress?
- How does this transaction support our long-term business strategy?
- Does everyone involved agree on the priorities?
Think of these questions as a strategic roadmap for the entire process. They are intended to help you evaluate potential partners, make tough decisions during negotiations, stay laser-focused during integration, and, if necessary, revise goals and success metrics.
4. Decide on M&A Candidate Must-Haves
Once you’ve defined your goals, you may consider evaluating potential merger or acquisition partners. It might be easy to get excited about a business with strong sales, a recognizable brand, or an impressive customer list. But before you get too far down the road, consider: Is this company actually the right fit for our business?
A potential deal may be worth considering when a company is a good strategic fit, not just an attractive opportunity. If you’re wondering how to evaluate M&A targets, start by looking beyond the numbers. Here are some tips for merger and acquisition candidate criteria:
Does the business fit your strategy?
A solid merger or acquisition is intended to move your business closer to your defined goals. Maybe you’re looking to expand into a new market, add products or services, bring in specialized talent, or reach new customers — does a potential partner seem likely to help you get there?
Are your company cultures compatible?
Even if the numbers look great, a mismatch in company cultures might create friction after the deal closes. Consider whether your values, leadership styles, and ways of working are compatible enough to support a potentially smoother transition.
Can the two businesses actually work well together?
Think about how easily the two businesses might be integrated. Could your systems, processes, and teams work well together right off the bat? The more complex the integration, the more time and resources it may require.
Will it make your existing business stronger?
A potential partner may bring something valuable to the table. Consider finding a partnering business that complements your strengths, supports your strategy, and may help support long-term growth for both companies.
As you narrow your list of acquisition candidate criteria, consider:
- Leadership with the experience to support future growth
- A customer base that complements rather than duplicates your existing one
- Products, services, technology, or intellectual property that could help support your business
- Opportunities to expand into new markets or potentially strengthen your market position
- A business model that might continue to grow and scale over time
Don’t ignore the red flags
Every business could have challenges, but some things might deserve a closer look. Operational challenges, declining revenue, outdated technology, or heavy reliance on one or two customers could all increase the risk of potential challenges associated with a deal.
Red flags may not always mean you should consider walking away. But they could signal that you might want to ask more questions to increase your visibility into your potential partner.
5. Plan and Execute Due Diligence
Once you’ve found a business that seems like a good fit, consider reviewing the details — a process known as due diligence. A thorough merger and business acquisition due diligence review may need to go beyond financial statements. The goal is to review key information, identify risks, and potentially avoid surprises after closing.
Depending on the business and the size of the transaction, your M&A due diligence checklist may include:
- Financial: Review balance sheets and cash-flow statements, debt, assets, liabilities, and other financial documents.
- Legal: Consider reviewing contracts, licenses, pending lawsuits, trademark or patent issues, public filings, and other legal obligations that could affect the business.
- Operational: Evaluate everyday operations, supply chains, and business processes.
- Human resources: Review leadership, employee contracts, compensation, benefits, organizational structure, and key talent.
- Technology: Assess software, data systems, cybersecurity, and intellectual property to help identify potential risks and determine whether the company's technology could support future growth.
- Reputation: Research customer reviews, vendor relationships, public records, and brand perception to help uncover possible issues that may not appear in the financials.
If any discrepancies crop up during this period, they may not necessarily be a dealbreaker, depending on whether the parties could work through any issues.
6. Assemble Your Transition Team
You may want to identify and brief your M&A transition team before the transaction is finalized. This team is intended to help keep everyone aligned, tackle challenges as they arise, answer employee questions, and help make the transition as smooth as possible.
To help the transition go smoothly, consider:
- Including the right people. Bring together experts with diverse skill sets from finance, operations, HR, IT, and other key departments who understand the inner workings of both businesses. You may also consider recruiting outside advisors with M&A experience.
- Preparing your team. Make sure everyone understands their roles and has the training, resources, and information to navigate the transition.
- Keeping communication open. Share regular updates, address questions, and spot challenges early so everyone may stay on the same page.
- Tracking your progress. Check in regularly to help confirm whether the integration is moving toward your original goals — and adjust your approach if needed.
7. Execute a Carefully Planned Integration
The deal may be closed, but in many ways, the hard work is just getting started. A successful post-merger integration isn’t just about combining systems. It’s about bringing together people, processes, and cultures in a way that may help support long-term growth. Your integration plan may include:
- Planning operating models early: Consider using this time to try to align workflows, policies, suppliers, and day-to-day processes so everyone is working toward the same goals.
- Putting people first: Clarify roles, communicate openly, support employees through the transition, and focus on retaining key talent.
- Prioritizing connecting your technology: Develop a plan for integrating software, data, and IT systems while keeping the business running smoothly.
- Keeping customers informed: Aim to communicate changes early, maintain service levels, and protect valuable relationships you’ve worked hard to build.
Depending on the size and complexity of the deal, integration could take varying amounts of time. Throughout that time, leaders may consider checking in, listening to feedback, and adjusting as the business evolves.
Quick Reference: Remember the Four Cs
One M&A framework to consider is the four Cs of mergers and acquisitions.
| The 4 Cs of Mergers and Acquisitions | What It Means |
| Compensate | Reward and support the people you want to keep. Realistic goals, retention incentives, or bonuses may help retain key employees through the transition. |
| Communicate | Keep employees, customers, and other stakeholders in the loop. Clear, honest communication may help reduce uncertainty and help keep rumors from taking over. |
| Care | Supporting employees through change could strengthen trust and morale. Listen to concerns, address issues, and support employees as they adjust to new ways of working. Respond to challenges, openly, and with empathy. |
| Cull | Make difficult decisions thoughtfully and without unnecessary delays. Whether it’s duplicate roles, systems, or processes, clarity may help the new business move forward. |
The Bottom Line
A merger or acquisition could be one of the biggest strategic decisions a business might make. It may feel like a lot to navigate, but breaking it down into manageable steps might help guide your journey.
After all, the end goal isn’t just to close the deal — it’s to help build a stronger, more resilient business for years to come.
Photo: Getty Images
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