In April 2022, HDFC Limited and HDFC Bank announced their merger — a transaction valued at approximately $40 billion that had been quietly in development for years before the announcement. The public heard about it on the day it was disclosed. The bankers, lawyers, accountants, and regulators involved had been working on it for much longer.
This is the reality of M&A that the headlines obscure: what gets announced on a Tuesday morning is the culmination of months — sometimes years — of origination, analysis, negotiation, and legal architecture. The announcement is not the beginning of the process. It is approximately the midpoint.
Understanding what actually happens — the sequence of events, the decisions at each stage, the failure points that kill deals before they close, and the invisible work that makes the visible outcome possible — is what separates a practitioner who can advise on M&A from one who can only describe it.
Why Most Descriptions of the M&A Process Are Wrong
Most articles describing the M&A process list phases — origination, due diligence, negotiation, closing — and describe each in generic terms. This framework is accurate but useless because it omits the decisions, the dynamics, and the moments where deals succeed or fail.
The non-obvious reality:
Most M&A processes are neither fully controlled nor fully sequential. Phase overlap is common — legal documentation begins before financial due diligence is complete. Decisions made in phase two force rework in phase one. Deals that look like they are in closing suddenly reopen negotiations because someone found something in the data room.
Most deals that fail do not fail at closing. They fail earlier — either because the strategic rationale was never genuinely tested, because the valuation gap between buyer and seller was never actually narrowed, or because due diligence revealed something that changed the economics of the deal but both parties were too committed to the process to walk away honestly.
The M&A process is fundamentally a risk-allocation exercise dressed as a transaction. Every clause in a purchase agreement, every representation and warranty, every escrow arrangement is an answer to the question: "If something goes wrong after closing, who bears the cost?"
Phase 1: Origination — Where Deals Actually Come From
Deals do not come from ideas. They come from relationships, from market conditions creating windows of opportunity, and from specific strategic needs that become compelling at a specific moment in a company's lifecycle.
How deals originate in practice:
Banker-initiated outreach: An investment banker identifies a company that is a logical acquisition target for a known buyer — based on sector knowledge, deal flow intelligence, or proprietary conversations.
Strategic origination by the corporate: The corporate development team at a large company identifies an acquisition opportunity as part of a strategic planning process. Tata Group's Air India acquisition originated from a strategic determination that Tata needed an aviation platform — the specific opportunity emerged when the government-led privatisation process created a defined window.
Sell-side advisory sought by management: A company's founders or shareholders decide they want to sell — triggered by retirement, succession planning, a need for capital, or an unsolicited approach from a potential acquirer.
Unsolicited approach: A potential acquirer approaches the target directly — either through management or through a board-level relationship — with an expression of interest.
The banker's role in origination:
An M&A banker's origination work is never entirely reactive. The most productive origination happens when bankers develop deep sector expertise and genuine relationships with CEOs, CFOs, and corporate development heads — such that when a strategic decision crystallises, they are the first call.
What goes wrong in origination:
The most expensive origination failures are mandates that should never have been signed. A bank that takes a sell-side mandate on a company that is not actually ready to transact — because the management team is ambivalent, because the financial performance is deteriorating, or because the shareholder structure has unresolved conflicts — wastes months of work and damages the relationships of everyone involved.
The second failure mode is accepting a mandate on unrealistic valuation expectations. If the seller believes the company is worth ₹2,000 Cr and every credible buyer sees it as worth ₹1,200 Cr, no process — however well-run — will close the deal.
Phase 2: Preliminary Analysis — What Happens Before Any Buyer Sees Anything
Before a formal sale process begins, the seller's banker does significant preparatory work.
Building the confidential information memorandum (CIM):
The CIM — sometimes called an "information memorandum" or "offering document" — is the primary marketing document for the target company. It presents the business in the most compelling light that honest disclosure allows: the strategic positioning, competitive advantages, financial history, management team quality, and investment thesis.
The CIM is typically 40-80 pages. Its production requires the bank to develop a genuine analytical view of the business.
What goes wrong: CIMs that are written by bankers who have spent insufficient time with management end up being financial data compilations with strategic language pasted on top. Experienced buyers identify these immediately — and price the lack of conviction into their bids.
The financial model:
Parallel to the CIM, the bank builds a financial model that projects the business's performance over a five-year period. The critical judgment: the projections must be credible. A model that projects 35% revenue CAGR for a business that has grown at 8% historically requires explicit justification.
Identifying the buyer universe:
Before reaching out to any potential buyer, the bank and management team develop a comprehensive list of parties who might be strategically or financially interested in the business. The decision about which buyers to approach — and in what order — involves both commercial logic and confidentiality management.
Process letter and data room preparation:
The data room — now universally virtual, typically hosted on Intralinks, Datasite, or similar platforms — is the repository of all information that potential buyers will use for due diligence.
Phase 3: The Sale Process — Structured vs Proprietary and Why It Matters
Structured (auction) process:
The bank contacts a defined list of buyers simultaneously, distributes the CIM, collects non-binding indications of interest, shortlists the most credible candidates, provides deeper access for due diligence, and collects binding offers on a defined timeline.
The logic: competitive tension between multiple bidders maximises the purchase price.
What goes wrong in auctions: when too many parties are invited, the process becomes expensive for everyone. Sellers who run a competitive auction signal that they are primarily price-motivated — which can affect the quality of the winning bidder.
Proprietary (negotiated) process:
The seller approaches one or two specific buyers and negotiates bilaterally — without competitive tension between bidders.
The logic: speed, confidentiality, relationship quality, and certainty of close.
The cost: typically a lower purchase price than a well-run auction.
The hybrid approach that most large-cap transactions use:
In practice, most sophisticated M&A processes are neither pure auctions nor pure bilateral negotiations. They are structured to create the appearance of competitive tension while managing toward the preferred buyer.
In 2022, when a mid-size Indian pharma company ran a sell-side process through a leading boutique, the bank initially contacted eight potential buyers — four strategic and four financial. By the time of first-round bids, five remained. After management presentations, three submitted second-round bids. The winning bid came from a strategic buyer at 14.2x EV/EBITDA — approximately 20% above the initial valuation expectations.
Phase 4: Due Diligence — The Phase That Actually Kills Deals
Due diligence is the period during which the buyer's team — financial, legal, tax, commercial, and operational advisers — reviews the target company's information and verifies or challenges the assumptions underlying the acquisition rationale and valuation.
What due diligence actually consists of:
Financial due diligence (FDD): The buyer's accounting advisers examine the historical financial statements, reconcile them to management accounts, identify non-recurring items that affect normalised EBITDA, and validate the quality of the revenue and earnings.
The most important output of FDD is the "normalised EBITDA" — the earnings figure that is genuinely representative of the business's sustainable performance, adjusted for one-time items, accounting policy differences, and owner-specific costs.
Legal due diligence: The buyer's legal advisers examine all material contracts (customer agreements, supplier agreements, leases, licences), intellectual property ownership, litigation exposure, regulatory compliance, and corporate governance.
Tax due diligence: The buyer's tax advisers examine the target's tax compliance history and identify potential tax liabilities. This is particularly important in India, where GST compliance, transfer pricing, and tax audit exposure can be material.
Commercial due diligence: Often conducted by strategy consultants rather than accountants, CDD examines whether the strategic rationale for the acquisition holds up under external scrutiny.
The issues that most often kill deals in due diligence:
- Customer concentration: a business where one or two customers represent 40%+ of revenue is structurally riskier than management often acknowledges
- Key person dependency: if the business depends on a founder or one or two relationships that do not transfer to new ownership, the value being acquired does not actually exist post-closing
- Undisclosed contingent liabilities: tax exposures, pending litigation, warranty claims, or regulatory investigations that are not visible in the financial statements
The price chip — how due diligence findings become negotiating leverage:
In many M&A transactions, the buyer's due diligence team is implicitly tasked with finding issues that justify reducing the price below the LOI figure. The sophisticated buyer identifies one or two material issues that are genuinely price-relevant, presents them to the seller with supporting analysis, and uses them to negotiate a reduction from the LOI price.
The difference between a deal-killer and a deal-adjuster is quantification and remediation. A tax exposure with a known worst-case amount can be handled by an indemnity or escrow. An exposure that is unknown in magnitude or timing is a deal-killer because neither party can price it into the structure.
Phase 5: Valuation and Pricing — Where the Economics Are Actually Determined
Valuation in M&A is not a calculation that produces a number. It is a negotiation that uses numbers as its vocabulary.
The buyer's advisers produce a valuation range that anchors toward the lower end of what is defensible. The seller's advisers produce a valuation range that anchors toward the upper end of what is credible. The deal price is somewhere between them — determined by the dynamics of the specific process, the quality of the underlying business, and the relative leverage of each party.
The earnout structure and when it works:
An earnout is a provision in the purchase agreement that allows part of the total consideration to be deferred and contingent on the target's post-closing performance meeting defined milestones.
Earnouts work when the performance metric is clear, objectively measurable, not easily manipulated by the buyer's management decisions, and achievable within a reasonable timeframe (typically 12-36 months).
Earnouts fail when:
- The metric is revenue, which the buyer can manipulate by changing pricing strategy, sales force incentives, or customer prioritisation
- The earnout period is too long (3+ years) and management's ability to influence outcomes erodes
- The buyer integrates the business in a way that makes standalone performance measurement impossible
In practice, DCF is rarely the primary valuation driver in M&A — it is used to validate or challenge a price set primarily by comparable transactions and competitive process dynamics. The side with the better analytical preparation for the negotiation consistently wins the valuation argument.
Phase 6: Negotiation — What Is Actually Being Agreed
The Letter of Intent establishes the headline price and structure. The purchase agreement negotiation is about everything else — and "everything else" turns out to be enormously important.
The deal structure decision: share purchase vs asset purchase
In a share purchase, the buyer acquires the legal entity — all assets and all liabilities, known and unknown. In an asset purchase, the buyer acquires specific assets and assumes only specific liabilities.
Asset purchases are preferred by buyers because they avoid inheriting unknown liabilities. Share purchases are often preferred by sellers because they are more tax-efficient and because customers, suppliers, and licences transfer automatically with the entity.
In India, most M&A transactions involving going-concern businesses are structured as share purchases.
The representations and warranties:
Representations and warranties are statements the seller makes in the purchase agreement about the state of the business. Their function is to allocate risk: if a representation turns out to be false, the seller owes the buyer compensation.
What gets negotiated: the scope of the representations, the qualifications to them, the survival period (how long after closing can the buyer make a claim), and the cap on liability (the maximum total amount the seller can owe).
The warranty indemnity insurance market:
A significant development in Indian M&A in the last five years is the growth of warranty and indemnity (W&I) insurance — a product that transfers the seller's warranty liability to an insurance company. W&I insurance has changed deal dynamics significantly: sellers can negotiate lower indemnity caps, buyers get institutional counterparty credit, and clean exits are more achievable for PE sellers.
Phase 7: Regulatory Approvals — The Phase That Cannot Be Rushed
For many Indian M&A transactions, the regulatory approval process is the single longest phase — often longer than financial due diligence and legal documentation combined.
CCI (Competition Commission of India) filings:
Transactions that exceed defined thresholds require CCI approval before closing. The CCI review process involves Phase I review (typically 30 working days) and Phase II review (additional 90+ working days) for transactions that raise significant competition concerns.
SEBI approvals for listed company transactions:
Acquisitions of substantial stakes in listed Indian companies trigger SEBI's Takeover Code obligations. An acquisition of 25% or more of a listed company typically requires an open offer to purchase an additional 26% from public shareholders at the trigger price.
Sector-specific regulatory approvals:
Financial services (banks, insurance, NBFCs): RBI or IRDAI approval; Telecommunications: DoT approval for spectrum and licence transfer; Pharmaceuticals: CDSCO involvement; Aviation: DGCA approvals; Media: MIB approvals for broadcast licences.
When HDFC Bank and HDFC Limited signed the merger agreement in April 2022, the deal closed in July 2023 — more than fifteen months later. The primary delay was the regulatory approval process: RBI approval for the amalgamation of a housing finance company into a scheduled commercial bank required satisfying specific capital adequacy, priority sector lending, and CRR/SLR requirements that took months of engagement to resolve. The deal was certain from a competitive standpoint from the day of announcement. The regulatory timeline was the binding constraint.
Phase 8: Closing and Post-Merger Integration — Where Value Is Made or Destroyed
The closing is the commercial completion of the transaction — the moment when consideration passes from buyer to seller and ownership transfers.
On the closing date, typically: final completion accounts or locked box calculation determines the precise purchase price, consideration is transferred, board composition changes, regulatory filings are made, and management transition begins.
Post-merger integration — where the deal thesis lives or dies:
The data on post-merger integration is consistently sobering: between 50-70% of M&A transactions fail to create the value projected at deal signing. The reasons are predictable and recurring:
- Synergies are overestimated in the deal model to justify an aggressive price, and the overestimation is only discovered after closing
- Cultural integration is underinvested — the assumption that "the people will sort it out" ignores that people do not sort it out without explicit management attention
- Key talent leaves — the people the buyer most needed to retain are often the first to leave
- Systems integration is more complex and expensive than planned
The announcement — the moment that generates headlines — falls between Phase 6 and Phase 7. By the time the public hears about a deal, all of the financial analysis, legal architecture, and negotiation is complete. The regulatory approval process is all that remains.
What Analysts and Associates Actually Do in an M&A Process
Understanding the M&A process is one thing. Understanding what a junior banker actually does within it is what connects the theory to the career.
Analyst responsibilities in a sell-side process:
- Building and maintaining the financial model (three-statement, DCF, comps)
- Compiling and formatting the CIM — writing the business description, producing the financial section, managing the charts and exhibits
- Building and organising the data room
- Tracking the process — maintaining the buyer list, tracking NDAs, monitoring IOI deadlines
- Running analysis on bids — comparing offers on price, structure, and conditions
- Coordinating due diligence — tracking information requests, following up with management on document provision
The analyst who builds the financial model is not just a spreadsheet operator — they are producing the quantitative foundation that the entire commercial negotiation rests on. Understanding why each assumption exists, not just how to model it, is what creates genuine analytical value.
The Common Reasons M&A Deals Fail — And What They Teach
Failure type 1: Valuation gap never resolved
The most common reason deals are announced but never closed is that the buyer and seller never actually agreed on price — they agreed on a headline number with enough ambiguity to allow both parties to believe they were getting what they wanted.
Failure type 2: Due diligence reveals a material issue that was always there
Experienced buyers find undisclosed issues, price it into the deal at a discount the seller refuses to accept, and the deal falls apart. Prevention from the seller's side: address material issues proactively in the process, rather than hoping they go undiscovered.
Failure type 3: Regulatory approval denied or conditions unacceptable
The CCI or another regulator requires remedies that make the transaction economically unattractive. Prevention: regulatory risk assessment before signing, not after.
Failure type 4: Key management leaves before or during closing
Prevention: retention packages for key management, backed by escrow from the seller's proceeds, with vesting tied to post-closing tenure.
Closing: From Process to Practice
Understanding the M&A process end-to-end is foundational knowledge for anyone pursuing investment banking, corporate development, private equity, or strategic consulting. But this article has covered the process from a structural perspective.
The next level of M&A competence involves working through specific analytical challenges that the process creates: How do you model the financial impact of a synergy programme that takes eighteen months to execute, costs ₹80 Cr in integration expenses, and produces ₹200 Cr in annual savings that are partially offset by revenue dissynergies from customer reaction to the combined entity? How do you evaluate the fairness of a completion accounts adjustment? How do you structure an earnout that preserves management's incentive to maximise performance while protecting the buyer?
At Meritshot, the Investment Banking programme is built around exactly this level of practical depth. Students work through end-to-end M&A case studies modelled on real Indian transactions — the HDFC Bank merger, the Zomato-Blinkit acquisition, cross-border pharma M&A, and PE-backed healthcare consolidation plays — where every phase of the process is worked through analytically, not just described.
Explore the Meritshot Investment Banking Programme →
This article was written by the Meritshot content team. Meritshot trains professionals in Data Science, AI Engineering, Full Stack Development, Investment Banking, and Cyber Security through hands-on, practitioner-led programmes.
