The acquisition, merger or sale of a company – Mergers & Acquisitions (M&A) – is a significant process for both buyers and sellers. Such a corporate transaction usually involves substantial amounts of money, reputation, and responsibility towards employees, customers, and the business-owning family. Particularly for small and medium-sized enterprises (SMEs), a clear structure and legally sound guidance throughout the transaction are crucial for its success. At the same time, almost every deal follows a proven process with recurring milestones: preparation, letter of intent, contract negotiations, due diligence, signing, closing, and integration.
In this article, we provide you with a practical, concise overview of how a deal typically unfolds, explain the key terms, and outline a realistic timeline.
1. The Phases of an SME Deal – Realistic, Streamlined, and Feasible
There is no textbook formula, but in practice most deals comprise the following phases: preparation (including strategy, readiness, and documentation), due diligence, contract negotiations, closing, and integration.
At the outset comes the entrepreneurial decision: Should the company or a business unit be sold? For what purpose and within what timeframe? In this phase, financial figures are prepared, legal groundwork is completed (corporate documents, contracts, IP status, HR matters), potential deal breakers are identified, and a communication strategy may also be defined. A structured start is ensured through non-disclosure agreements (NDAs) and – once serious interest arises – letters of intent that set the framework for the next steps. Systematic preparation prevents delays in the due diligence process and significantly accelerates subsequent contract negotiations.
2. LOI, TS, IA, SHA, SPA – Decoding the Abbreviations and Their Significance
The Letter of Intent (LOI) records the intentions and key parameters of the deal. “Classically,” an LOI is non-binding. However, provisions on exclusivity, confidentiality, cost allocation, and potential break-up fees are often binding. Clearly drafted non-binding clauses help avoid misunderstandings. The Term Sheet (TS) serves a similar purpose, is often structured in a contractual, tabular format, and functions as a framework for the subsequent contractual documentation. Frequently, the term sheet contains a non-binding, structured summary of the economic and legal key points. It acts as a bridge to the contractual documentation. In practice, LOIs and term sheets are used pragmatically to stabilize the framework without restricting the parties’ flexibility.
IA stands for Investment Agreement. In venture capital transactions, it governs, among other things, closing conditions, liquidation preferences, anti-dilution protection, information and veto rights, as well as obligations at closing. The IA rarely stands alone but is typically intertwined with a shareholders’ agreement.
The Shareholders’ Agreement (SHA) regulates, in particular, participation rights, transfer restrictions, pre-emption and right of first refusal, tag-along and drag-along rights, governance matters, dividend policy, and exit mechanisms. It is aligned with the company’s articles of association and the board regulations.
SPA stands for Share Purchase Agreement. The SPA governs the actual sale. Key provisions include purchase price, subject matter, conditions and obligations between signing and closing, transfer of title, representations and warranties, indemnities, and dispute resolution. Share purchase agreements are typically extensive and detailed. This is for good reason: companies are complex, evolving entities, and international standards significantly influence contract drafting.
3. Due Diligence – Verifying What Must Withstand the Test of Time
Following the LOI and TS, the due diligence (DD) phase begins. Both buyer and seller systematically review the target company’s financials, tax matters, legal aspects, intellectual property (IP), data protection, and other relevant areas. A well-structured data room – containing all documents necessary for review – accelerates the process and reduces risks. The findings directly feed into the purchase price mechanisms, conditions, representations and warranties, indemnities, and covenants of the SPA. Due diligence is therefore not merely an audit, but a key driver shaping the contract content and liability allocation.
4. Signing and Closing – From Handshake to Completion
After the negotiations are concluded, the SPA and SHA are executed (signing). Both the SPA and the SHA are always set out in writing, even though no formal written form would be legally required.
The actual transfer of participation rights is subject to its own formal requirements: if shares in a Swiss stock corporation (Aktiengesellschaft) are transferred, they must – depending on their form – be transferred by endorsement or by written assignment. Such assignment must be signed by hand or with a qualified electronic signature (DocuSign is not sufficient). In a limited liability company (Gesellschaft mit beschränkter Haftung), the transfer of contributions likewise requires a written assignment; in practice, the consent of all company members or the members of the general meeting is typically also necessary.
Between signing and closing, the agreed conditions precedent must be fulfilled. For example, consents under change-of-control clauses in important customer and supplier contracts must be obtained. Moreover, no material adverse change may have occurred: the financial, earnings, or business condition of the target must not have materially deteriorated. In addition, the parties are bound by certain rights and obligations (so-called covenants) during this phase: duties of good faith, information and cooperation obligations, as well as the seller’s duty to continue operating the business in the ordinary course.
At closing – the actual completion date – the closing actions are carried out step by step: the purchase price is paid, participation rights are transferred, transfer documents are exchanged, and corporate actions are implemented. The new owners are entered into the share register (Aktienbuch) or register of contributions (Stammanteilbuch), and, where required, board resolutions are adopted. If the registered shares to be transferred are subject to transfer restrictions – which is the rule for SMEs – their transferability requires approval by the board of directors. In the case of a limited liability company, the new shareholders are also entered in the commercial register; shareholders of an stock corporation, however, are not publicly registered. It is precisely at this moment of closing that the company legally and economically passes on to the acquirer.
A closing memorandum is usually drawn up on the closing date. The closing memorandum records the sequence of steps and serves as both an execution record and evidence protocol.
5. Post-Closing Integration – The Final Step
After closing, the real entrepreneurial work begins: adapting the organization, integrating systems, engaging employees, harmonizing branding, and realizing synergies. From a legal perspective, updates to the articles of association and organizational regulations, elections of corporate bodies, and novation of contracts must be orchestrated. Any necessary amendments to entries in the commercial register must also not be overlooked.
6. Timing for SMEs – a Realistic Pace, Not a Sprint
A well-prepared SME transaction often takes four to twelve months. Depending on size, complexity, financing and execution discipline, a deal can take up to eighteen months. The due diligence typically requires several weeks; contract negotiations and the alignment of financing can be accelerated in parallel. The decisive factor is the “critical path”: those who secure early clarity on key issues (such as intellectual property rights, regulatory approvals, tax matters or employment law) gain valuable time.
Conclusion
An M&A transaction in the SME environment is not a foregone conclusion. The process depends on clear structure, thorough preparation, and rigorous legal work. What matters is that buyer and seller lay the groundwork early: clean corporate records, clear objectives, a realistic timeline, and awareness of legal pitfalls. The more professionally the transaction is prepared, the smoother due diligence, contract negotiations, and closing will be. Addressing the key issues at an early stage accelerates the process and limits risk.
In sum, a successful deal is less the product of luck than of disciplined project management, legal precision, and open communication between the parties. With the right guidance – legal, tax, and strategic – a first handshake becomes a closing that endures and delivers the intended value for all stakeholders. We provide comprehensive support to ensure that your transaction becomes a success.
