Master The M&A Pipeline - 8 Stages Explained (and more)

Mergers and acquisitions - just the phrase is enough to make some people glaze over with boredom. M&A deals are complex, high-stakes transactions with the power to make or break companies.

Navigating the twists and turns successfully requires strategy and planning. This is where M&A pipelines come in. These step-by-step roadmaps guide deals seamlessly from initiation to completion.

In this guide, we'll explain pipelines in simple terms. You'll discover what pipelines entail, their key stages, and tips for creating smooth-flowing pipelines attuned to your company's needs. Then, you'll be able to tackle complex multi-million dollar deals confidently.

So, let's dive in.

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What is an M&A Pipeline?

An M&A pipeline maps out the end-to-end workflow and sequence of milestones a potential acquisition goes through, spanning from early strategy development to post-acquisition integration.

Also called an M&A funnel, the pipeline is like a roadmap that deals follow from the initial outreach to closing the sale.

The pipeline gives each deal a clear structure to prevent things from slowing down unnecessarily. It also sets criteria that deals must meet before moving to the next stage. Any deals that don't stack up fall out of the pipeline along the way.

Is it the Same as an M&A Funnel?

The terms "pipeline" and "funnel" are sometimes used interchangeably in M&A, and rightly so, as they refer to the same concept - the structured workflow and phases that every transaction goes through.

However, they focus on different things:

  • The pipeline tracks how an individual deal progresses through each step.

  • The funnel looks at the bigger picture - how many potential deals enter the process and the number that make it through each milestone.

So, the pipeline follows a deal's journey, while the funnel measures how efficiently deals convert overall. But both are super important in mergers and acquisitions.

Why is it Important?

Effective pipeline management brings order, transparency, and accountability to transactions. Without a pipeline, deals risk falling between the cracks, spreading misinformation, duplicating work, and ultimately failing to meet objectives.

Using a pipeline brings a ton of benefits:

  • Alignment: It improves alignment since all parties know the deal status and next steps.

  • Organization: It gives every deal a clear roadmap to follow so they don't get stalled unnecessarily.

  • Communication: Communication with stakeholders stays consistent on progress.

  • Accountability: Clear ownership for deliverables and deadlines. Issues can be spotted early and fixed before they spiral.

  • Optimization: Tracking metrics highlights ways to optimize the pipeline over time.

A tight pipeline keeps everything on track from call #1 to closing day and is also crucial for guiding an M&A deal to maximize its value.

Companies like Exitwise, which streamline the business selling process by managing M&A teams, leverage pipeline expertise to deliver successful outcomes for clients. Reviewing Exitwise's client success stories showcases the value of effective pipeline management.

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The 8 Stages of an M&A Pipeline

M&A deals take a long time - usually 6 months or more per deal. And they involve tons of people from different teams working together. Having clear pipeline stages is vital to keeping everyone aligned.

Each stage lays out the specific milestones and tasks that need to be done before moving to the next phase.

Here are the 8 key M&A pipeline stages:

1. Strategy Development and Goal Setting

Every M&A deal involves tying your strategy to the bigger business goals. What exactly are you trying to achieve from an acquisition?

Some common goals include:

  • Gaining new capabilities or technology (IP)

  • Entering a new market or region

  • Increasing overall market share

  • Reducing costs by combining operations

  • Growing revenue through new products or customers

This first step involves:

  • Looking at your strengths, weaknesses, opportunities, and threats to identify needs.

  • Pinpointing goals an acquisition could help with - like expanding into a new area.

  • Getting agreement from leadership on the strategy.

  • Setting specific targets - like cost cuts or revenue increases.

Having clear goals aligned to strategy steers which deal you pursue - and as the saying goes, luck is when preparation meets opportunity. Laying the groundwork here prevents reactive decisions down the line.

Revisiting the goals often ensures you stay on track through the process. The strategy leads the M&A plan, not the other way around.

A great example is Disney's acquisition of Marvel on December 31, 2009. Disney wanted to expand their audience beyond just kids. Marvel had iconic characters but was struggling in the changing entertainment world.

The deal let Disney diversify into superhero movies for an older crowd. And it gave Marvel resources to bring its heroes to the big screen. Their strategies lined up perfectly!

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2. M&A Strategy Formulation

Once the goals are clear, it's time to map out how you'll execute the M&A strategy. Corporate development professionals start this by meeting with people in the company who know best.

This stage involves:

  • Target screening criteria - characteristics of ideal acquisition targets based on strategic needs and goals. Criteria may include industry, location, size, profitability, and growth rate.

  • Search methodology - methods for sourcing potential targets like trade shows, conferences, networking, market research, and advisor recommendations.

  • Valuation methodology - picking valuation methods to assess targets - such as discounted cash flows, EBITDA multiples, and comparable transactions.

  • Deal team roles - assigning cross-functional team members key responsibilities in evaluation, due diligence, negotiation, and integration. The deal team also builds financial models analyzing ROI, risks, integration challenges, and other factors.

  • Advisor engagements - appointing external advisors like investment bankers, accountants, and lawyers.

Exitwise can help assemble the right M&A advisory team for your needs. We don't directly provide advisory services but connect you with top industry-specialized M&A experts.

Check out our process for connecting clients to expert M&A advisors.

The upfront planning gives a playbook for finding and evaluating deals. With the game plan set, it's time to search for acquisition opportunities!

3. Market Analysis and Target Identification

Once the acquisition criteria are set, it’s time to start scouting the market for companies that fit the bill. Leading acquirers keep a running list of over 100 possible targets to evaluate.

They put together financial models and cases for each, updating the details as conditions change. But even with all this prep work:

That shows just how tough it can be to find the right match.

In this stage, the goal is to analyze the landscape and zero in on businesses that align with strategic goals and priorities.

Some key inputs include:

  • Industry trends shaping things now and in the near future

  • Competitor analysis to spot where they fall short

  • Gaps representing opportunities to grow our footprint

  • Profiles of companies hitting our ideal criteria

  • Consumer pain points we can solve

The target list gets narrowed down by collecting intel on the prospects from public records and personal networks. The most promising ones get flagged for the next round.

Tools like Pitchbook, Crunchbase, Glassdoor, Capital IQ, and Bloomberg help compare targets on size, finances, culture fit, and more without initial contact. This pre-screening separates the contenders from the pretenders.

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4. Initial Contact and Preliminary Assessment

With a shortlist of qualified targets, it’s time to reach out and start the conversation. The goal here is to gauge their interest in a deal and learn more about their business.

Some typical first contacts:

  • An intro call floating the idea of joining forces.

  • Testing how open they are to an acquisition.

  • Getting an NDA in place so we can speak freely.

  • Asking for financials, growth plans, etc., to make an initial assessment.

  • Meeting key leaders to align visions and see if cultures mesh.

The prospect shares vital data on finances, operations, and performance if there's mutual interest and alignment. Use this intel to decide whether warranting the time and legal costs of formal due diligence is worthwhile.

If so, we move ahead to the next phase. If not, we part ways or table discussions for an agreed period.

At this stage, there are two main next steps:

  • Send a request for more detailed information.

  • Schedule an in-person meeting to explore further.

5. In-Depth Evaluation and Due Diligence

The due diligence phase separates high-potential from low-probability deals. With an NDA locking down confidentiality, buyers gain inside access to evaluate strategic, financial, legal, and operational factors.

Typical activities include:

  • Forming a structured diligence plan and outlining information requirements.

  • Issuing formal information requests and questionnaires.

  • Reviewing documents provided by the seller in a virtual data room.

  • Conducting site visits to facilities, stores, and warehouses.

  • Interviewing management and key personnel.

  • Analyzing operations, financials, contracts, compliance, and risks.

  • Validating growth opportunities, cost, and revenue synergies.

  • Developing an integration plan and 100-day roadmap.

This under-the-hood analysis uncovers red flags while mapping the key value-creation levers. Top prospects advance to final negotiations.

However, it's essential to note diligence isn't the full picture.

McKinsey suggests diligence often overlooks up to half of the possible merger value. Companies must look beyond due diligence to find extra synergies and upside.

Senior businessman reviewing documents with colleagues.

6. Deal Structuring and Negotiations

With due diligence wrapping up, it’s time to define the acquisition agreement and start negotiating.

Key aspects to nail down include:

  • Deal consideration - Cash, stock, or future earnouts

  • Calculating the valuation and agreeing on a fair price

  • Settling the terms around payment methods, timeframes, and approvals

  • Drafting the legal purchase agreement covering reps, warranties, etc.

  • Timeframes and legal/regulatory signoffs

  • Getting internal green lights from decision-makers

  • Creating a communication plan to announce the deal

  • Pointing management responsibilities post-close

Finding common ground is crucial here. Maintaining the trust and transparency established earlier keeps talks productive. The M&A financing structure is also vital to align during this phase to access sufficient capital for the transaction.

External advisors like M&A lawyers and accountants are invaluable at this stage. Our team at Exitwise can connect you with skilled M&A advisors tailored to your industry to offer invaluable guidance for sealing successful deals.

The ideal outcome is a win-win where both parties walk away satisfied.

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7. Finalizing the Deal and Legal Closure

At the climax of months of work, it’s time to make things official and close the acquisition deal.

Getting over the finish line entails:

  • Checking all regulatory and legal boxes

  • Confirming all agreed conditions are met

  • Signing the major transaction agreements

  • Establishing a closing checklist tracking key items

  • Executing contracts and transferring funds

  • Announcing the news publicly

The target company legally changes hands once every requirement is met and signatures dry. But the work doesn’t end with inking the contract.

8. Effective Post-Merger Integration Execution

With contracts signed, the real work begins - integrating two distinct companies into one cohesive whole. This involves weaving together strategic, financial, and operational elements.

Early planning is key. Top acquirers build integration models pre-close and focus diligence on defining this future state. Detailed roadmaps outline milestones, priorities, risks, synergies, and metrics.

Keys for integration success include:

  • Day 1 readiness - plans, resources, and communications prepared before close

  • Cultural integration - assessing differences and change impacts on staff

  • Retaining key talent - identifying and transitioning critical people

  • Tracking synergies - mapping realization roadmaps for cost and revenue

  • Ongoing communication - frequent, transparent updates to reduce uncertainty

  • Performance monitoring - tools like scorecards to track vs. milestones

Ultimately, integration determines if expected returns materialize or if deals fall short. This marathon phase transforms M&A pipelines into corporate payoffs.

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Overview of M&A Pipeline Management

Now that we’ve mapped out the key stages in an M&A pipeline let’s talk about how to actually manage all those moving parts smoothly. Here are 4 crucial areas to focus your pipeline management efforts:

1. A Secure Central Platform to Store All Documents and Data

First, you need one secure place to store all files, models, contracts, and info related to your deals. Rather than scattered emails and folders, use deal management platforms to easily control access.

Excel or Google Sheets works fine when starting out. Structure your sheet with columns for company name, date contacted, status, valuation, and other key details.

2. Eliminating Work Silos Through Open Communication

With so many parties involved across months, confusion and duplication creep up unless all groups are looped in.

Ensure your teams have 30-minute touchpoints 2-3 times weekly to raise risks early. Siloed work just causes headaches and failed deals.

3. Clear Task Management

Deals have many moving pieces, but assigning owners to milestones keeps things tidy. Shared checklists let you see what’s blocking progress, too.

Prioritize by tagging tasks as critical, high, medium, and low to stay on track each week.

4. Capturing Pipeline Analytics

Finally, capture pipeline analytics like cycle times and fallout rates. If deals typically take 9 months, why did this one drag to 12? Delays can kill the sale of a business, so understanding what causes slowdowns is key.

Similarly, if your diligence fallout rate creeps from 10% to 30%, that’s an alarming trend! This metric highlights inefficiencies in the process.

Understanding these pipeline performance metrics helps spot improvement areas to pursue for the next deals.

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How to Build an M&A Pipeline

Constructing a productive pipeline starts with strategy and ends with integration. Follow these 5 steps for M&A success:

1. Define Acquisition Strategy and Target Motivations

Before anything else, clearly define what you want acquisitions to achieve. Do you need capability X or access to new markets?

Aligning to concrete strategic motivations keeps you disciplined when attractive but off-strategy targets appear.

2. Create Your Ideal Target Company Profile

Next, define your perfect acquisition candidate across factors like culture, financials, risk level, and strategic fit. This will vary by company and deal thesis but creates your guardrails.

3. Research Prospects and Make Initial Contact

With your criteria locked down, dive into market analysis to identify promising companies. Long before due diligence, approach these prospects to share your vision and learn more about their business.

If there’s interest on both sides, ask for basic financial or operating data to determine compatibility.

4. Perform Confidential Due Diligence Evaluation

Once you have a signed NDA, get into the private company details that matter. Audit their financial statements, customer contracts, cybersecurity protections, and more.

This in-depth diligence leaves no stone unturned, ensuring there won’t be any unpleasant surprises that derail the deal later.

5. Start Post Merger Integration Planning Early

Your due diligence findings should directly inform integration planning even before closing. Size up synergies, flag priority areas for alignment, and anticipate challenges.

Workstreams around people transitions, system consolidations, product portfolios, and more all need early structuring.

Stick to this game plan, and your pipeline will pay dividends for years to come through well-executed deals tightly aligned to strategy.

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Frequently Asked Questions (FAQs)

As we wrap up this comprehensive guide on mastering M&A pipelines, let's review some common questions that arise.

What Role Does Due Diligence Play in the M&A Pipeline Process?

Due diligence represents the pivotal stage separating high-potential from low-probability deals. The in-depth investigation validates the buyer's assumptions and builds confidence in the valuation models.

Specific roles of due diligence include:

  • Risk mitigation - Identifying any red flags or M&A deal breakers before closing

  • Synergy quantification - Modeling cost and revenue synergies more accurately

  • Value validation - Firming up target valuation with real data review

  • Integration planning - Informing post-merger structure, priorities, and goals

Without thorough due diligence confirmation, acquirers risk overpaying and being surprised by post-close issues.

How Do Companies Prioritize Deals in the M&A Pipeline?

With limited resources, acquirers must decide which prospective targets get prioritized for further discussions. Key ranking factors include:

  • Strategic fit - How central is the target to corporate objectives?

  • Synergy potential - What is the cost/revenue synergy size?

  • Risk factors - Do initial findings reveal any red flags?

  • Leadership interest - Is there executive sponsorship to pursue?

Deals meeting strategic goals and indicating sizable synergies with low-risk profiles get prioritized. But, leadership interest also plays a role in deal prioritization.

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What Criteria are Used to Evaluate Potential M&A Targets?

When identifying qualified companies for acquisition, common evaluation dimensions include:

Financial Criteria:

  • Revenue/earnings trajectory

  • Cash flow consistency

  • Profitability

  • Leverage considerations

Strategic Criteria:

  • Market segment attractiveness

  • Competitive positioning

  • Brand reputation

  • Strategic and cultural fit

Operational Criteria:

  • Management quality

  • Business model resiliency

  • Potential integration complexity

  • Technology infrastructure

Balancing financial, strategic, and operational factors provides a comprehensive view of profiling ideal companies to pursue for M&A.


There you have it - a crash course in M&A pipelines. We covered what they are, the key stages your deals will pass through, and critical practices for smooth management. The right pipeline foundations prevent deals from falling into chaotic silos.

Now, if you’re considering selling your own business, the pipeline is just one piece of the puzzle. Ensuring you have the right advisory dream team is just as crucial for maximizing your valuation and outcomes.

This is precisely why Exitwise exists - to help founders like you carefully select and manage specialized investment bankers, M&A lawyers, valuation pros, and other experts ideally suited to your industry and deal needs.

So, if you see an exit approaching in the coming years, schedule a strategy session with Exitwise to map out your pathway to success.

Brian Dukes.
Brian Dukes

Brian graduated from Michigan Technological University with a BS in Mechanical Engineering and as Captain of the Men's Basketball Team. After a four-year stint at Deloitte Consulting, Brian returned to school to get his MBA at the University of Michigan. Brian went on to join his first startup, a Ford Motor Company Joint Venture, and cofound a technology and digital marketing services agency. Through those experiences, Brian embraced the opportunity to provide M&A education and support to his fellow business owners as they navigated their own entrepreneurial journeys.

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