Financing M&A transactions: stages, sources

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Mergers and acquisitions (M&A) are among the most complex and multifaceted aspects of corporate financing. The success of such transactions depends not only on strategic and operational decisions, but also on a carefully constructed financing system. Incorrect source selection or underestimation of risks can jeopardize even carefully drafted contracts.

Merger and acquisition financing is a complex and multifaceted process that can include both traditional bank loans and alternative capital lines. It is not just about raising funds, but about a whole system of strategic decisions where every decision can affect the stability and development of the company in the long term.

M&A financing stages: how to ensure success from start to finish

It is important not only to choose the right sources of capital, but also to consider many factors at each stage: from assessing the value of the company to choosing the optimal financing model.

1. Drafting an agreement: important aspects for a successful start

One of the most important tasks in the preparation phase is to analyze the risks that may arise during the transaction, including possible tax consequences, legal requirements and external economic factors.

It is necessary to determine how much capital is needed to fulfill the agreement. In this step, data on financial needs are collected and analyzed, for example, to determine the value of the company or the assets to be acquired. In this context, financing mergers and acquisitions can depend on both external factors and the internal needs of the organization.

The preparation of the advisory team that will accompany the transaction plays an important role. Lawyers, financial analysts, corporate account managers and other specialists will help you select the right financing instruments. In addition, advisors conduct a detailed analysis of current market conditions and future expectations, which influences the selection of the safest and most profitable sources of investment.

2. Company valuation: how to correctly determine the value of a transaction

An important stage that affects subsequent decisions. After all, the value of a company is not just a number on paper; it is a reflection of the country’s competitiveness, liquidity and growth prospects. The process of business valuation involves several methods, each with its own characteristics and applicability, depending on the type of agreement and market conditions:

The Discounted Cash Flow (DCF) method estimates the value of a company based on the future cash flows that the company can generate. The method is useful for long-term capital-intensive transactions, as it allows a more accurate prediction of the company’s future financial position.
Comparative analysis, where the value of a company is determined by comparing it with other similar companies in the market. This technique is particularly suitable when sufficient data is available to carry out such studies.
The asset-based valuation method mainly looks at the value of all the assets of a company, including real estate, equipment and intellectual property. This approach is generally used for simpler contracts, such as mergers of companies active in manufacturing.

Merger and Acquisition Financing Sources: Which One to Choose to Close a Successful Deal?

Once the business valuation is complete, it is time to select a financing source. Not only the cost of the contract is important, but also its design and the risks associated with its execution. Merger and acquisition financing sources can range from traditional bank loans to private investments:

Bank loans. They can be short-term or long-term and are usually used in cases where a deal needs to be closed quickly. Banks apply different conditions, such as interest rates, terms and required collateral.
Private investors and venture capital: suitable for start-ups or companies with high growth potential. Private investors can also be strategic partners and offer significant added value through their knowledge and networks.
Bond issuance is a suitable method for large companies that want to raise large amounts of capital, but do not want to take on debt in the form of bank loans. Bond issuance enables long-term financing without too much dependence on traditional lenders.
Loans from institutional investors: In recent years, pension funds and insurers have become increasingly interested, as they can offer financing on more favourable terms than traditional credit institutions.

Political and economic challenges

Financing mergers and acquisitions in Russia is challenging due to political and economic instability. Changes in legislation and uncertainty and instability in financial markets can have a major impact on the choice of capital sources and the design of contracts. Sanctions and restrictions are forcing many companies to adopt new approaches and adapt their financing strategies.

Changes in tax policy can therefore affect the attractiveness of the agreements and reduce their profitability. In addition, global economic changes, such as inflation and exchange rate fluctuations, can affect interest rates and borrowing costs. In an unstable economic environment, it is difficult to predict how financing standards will change, increasing the risks for transaction participants.

Conclusion

Financing mergers and acquisitions is a complex, multi-stage process that requires careful approach and comprehensive preparation. For successful contract execution, it is important to consider all potential sources of capital and their interaction with the transaction objectives. Each decision must be justified not only from a financial point of view, but also taking into account risks, legal requirements and the general market situation.

In order to successfully conclude contracts, it is important to pay attention to each stage: from preparing and assessing the agreement to finding sources of financing and signing the contracts. Only such an integrated approach guarantees favorable conditions for all parties involved.

Mergers and acquisitions in Russia: legal realities and practical recommendations

Mergers and acquisitions are an important aspect of business development in Russia. They allow companies to strengthen their market position, optimize business processes and achieve a new level of competitiveness. However, despite all the potential of these deals, the legal aspects are a real test for the company. It is important to realize that every stage, from negotiations to business integration, requires a thorough knowledge of legal and regulatory obligations. Especially in a process where all parties strive for the greatest possible benefit, legal assistance helps to avoid serious mistakes and setbacks.

Legal aspects of mergers and acquisitions in Russia

The main regulatory documents regulating such transactions are the Civil Code of the Russian Federation (Articles 49, 52), the Federal Law “On Joint Stock Companies” (FZ-208) and the Federal Law “On Protection of Competition” (FZ-135). These laws determine how companies can cooperate, merge and restructure without violating the law.

Mergers and acquisitions in Russia are also subject to antitrust rules that are intended to prevent market monopolization. The Federal Antimonopoly Service (FAS) monitors compliance with these rules and analyses each transaction based on its impact on competition. Preliminary discussions with the FAS play an important role in this. This allows the risks of the transaction and the approval requirements to be assessed at an early stage.

In addition, transactions must comply with corporate governance rules. The rights of shareholders, including their right to information and voting, must be protected. If there is a violation of corporate law, the transaction can be challenged and the participants can be held liable. By preparing a complete package of documents and following all legal procedures, you can avoid these risks.

The main stages of an M&A transaction

Every M&A transaction in Russia goes through several stages, each of which requires careful preparation and legal expertise:

Transaction preparation: Parties negotiate and conclude preliminary agreements (NDAs, letters of intent). To avoid unexpected problems in the future, it is important to assess potential risks in advance.
Due diligence: All aspects of a company’s business operations are assessed, including the legal status of assets, obligations to creditors, lawsuits and tax compliance. This process can take from several weeks to several months, depending on the size of the organization.
Signing of the main contract: This sets out the terms of the transaction, the obligations of the parties, deadlines and penalties for non-compliance.
Business integration: merging the structures of two companies. This includes not only the legal merger, but also the integration of employees, IT systems and processes. This phase usually takes up to a year and requires careful coordination of all business processes.

Tax and antitrust aspects

Taxation of mergers and acquisitions is a major challenge in Russia. The main goal is to optimize tax payments, minimize tax risks and comply with all tax laws. According to the Tax Code of the Russian Federation (Chapter 25), when restructuring a company, specific aspects of profit tax, value added tax and real estate tax must be taken into account.

One of the most common problems is the need to correctly recalculate the tax base and transfer losses of merging companies. Failure to consider all possible options and consult with the tax authorities can lead to serious consequences.

Another important aspect is the antimonopoly regulations for mergers and acquisitions. Transactions that may affect the competitive environment are subject to mandatory approval by the Federal Antimonopoly Service. The FAS considers applications if the total value of the participants’ assets exceeds 7 billion rubles or if the total annual income exceeds 10 billion rubles. Failure to comply with these rules may result in the cancellation of the transaction and significant fines.

Valuation and merger of companies

Company valuation in mergers and acquisitions in Russia is a crucial stage that determines the financial viability of the transaction. Valuation is carried out using various methods, such as the income approach, the comparative value approach and the cost approach. Each of these methods has its own advantages and limitations. For example, in the income approach, the value of a company is determined based on future cash flows. This is especially relevant for companies with high growth prospects.

However, merging companies also carries many risks, including the possible loss of key employees, disruption of business processes and the need to integrate different corporate cultures. In order to minimize these risks and ensure a successful merger, it is important to develop an integration plan in advance.

Mergers and acquisitions in Russia: conclusion

With proper preparation and competent legal support in mergers and acquisitions in Russia, you can avoid many problems and risks related to taxes, antitrust regulations and shareholder rights.

It is important to remember that only a thorough approach to legal and tax issues can ensure a stable and successful merger and minimize potential negative consequences. When you invest time and resources in drafting high-quality agreements, you invest in the long-term success and stability of your company.

June 25, 2025

What are mergers and acquisitions and why are they done?

Mergers and acquisitions transactions are not simply negotiations for the purchase or combination of assets. They allow companies to expand their capabilities, enter new markets and increase their market share in existing markets. M&A (mergers and acquisitions) includes both mergers and acquisitions. Each of these forms of interaction has its own purpose and strategy.

Mergers and acquisitions enable companies to grow rapidly, adapt to changes in the market and increase their competitiveness. This is often one of the most effective ways to stay ahead of the competition and gain access to new technologies or talent.

What is M&A (mergers and acquisitions)?

Mergers and acquisitions are a series of processes related to the consolidation and acquisition of companies:

A merger is a voluntary combination of two or more parties who pool their assets and resources to achieve greater success together.
A takeover is the purchase of a company by another company, in which the acquired company completely loses its legal independence. The former are usually carried out between institutions of the same size, while the latter are usually initiated by a larger holding company.

An example of a promising global M&A transaction: the merger between Disney and Pixar. This allowed Disney to strengthen its position in the entertainment industry and gain access to animation technologies. Another example is the acquisition of LinkedIn by Microsoft, which allowed Microsoft to integrate its ecosystem into the largest professional network in the world.

The main difference between both transactions lies in the nature of the combination: a merger is more a typical example of a corporate transaction, while an acquisition often has a hostile connotation because the acquired party may not agree to the terms of the transaction.

Types of M&A

Each form pursues its own goals and objectives. There are several main types of M&A:

Horizontal: The collaboration between representatives of an industry to increase market share. Example: the merger of Fiat and Chrysler, which created a more competitive automobile group.
Vertical: The association of institutions located at different levels of the same production chain. Example: Amazon buys a logistics company to optimize product delivery.
Conglomerate: Merger of organizations operating in different sectors, with the aim of diversifying business activities. For example, when Berkshire Hathaway acquired Duracell, the company expanded its product range and minimized risks.
A hostile takeover occurs when an organization takes over another organization against its will. This is done by buying shares directly on the stock exchange. A well-known example is Microsoft’s attempt to acquire Yahoo.

All these factors ensure that companies can flexibly choose a growth strategy based on their objectives and the current market situation.

Merger and acquisition transactions in Russia

The Russian market has its own characteristics that differ from global trends. Sanctions and economic instability have had a significant impact on merger and acquisition activities. Despite these restrictions, Russian entities continue to use mergers and acquisitions to expand their capabilities and strengthen their position in this area. Another feature is the active involvement of the government, which often determines the direction of transactions and influences the final outcome.

In recent years, transaction activity in the oil and gas sector has increased as major players seek to consolidate their assets and strengthen their control over resources. An example of this is the partnership between Rosneft and Bashneft, which allowed Rosneft to strengthen its position as one of the largest oil producers in the world.

In addition, transactions in the IT and telecommunications sectors play an important role in the Russian M&A market. Yandex is actively acquiring startups to strengthen its position in the technology and logistics sectors.

Strategies for companies

Mergers and acquisitions play an important role in developing growth and development strategies. By using different approaches, companies can optimally respond to changes and increase their competitiveness. Main methods:

Horizontal measures help to reduce the number of competitors and increase market share. For example, large supermarket chains often merge to jointly save costs and strengthen their position.
Vertical systems allow a company to control more stages of the production cycle, thus minimizing costs and improving logistics. An example of this type of transaction is buying from suppliers or distributors.
Diversification through conglomerate transactions helps to minimize risks. For example, manufacturing companies can acquire financial assets for diversification purposes.
Acquisition of innovative start-ups. Many large companies undertake small-scale projects to gain access to new technologies and innovations. This approach allows for rapid adaptation to technological changes, as Facebook did with the acquisition of Instagram and WhatsApp.

Why mergers and acquisitions remain crucial in business

Mergers and acquisitions offer companies the opportunity to quickly adapt to changing market conditions, increase their competitiveness and enter new markets. They help to pool resources, technologies and knowledge, which ultimately strengthens the position of organizations and contributes to their long-term success. M&A still plays an important role in the economy. They stimulate innovation, growth and global expansion.

Companies that use strategies intelligently can not only improve their market position, but also become market leaders. M&A is therefore still one of the most attractive instruments for those who want to reach the top of the economy.

June 18, 2025