Few decisions transform a company as profoundly as buying or selling a business. Mergers and acquisitions, commonly known by the abbreviation M&A, allow companies to gain scale, enter new markets, absorb competitors or secure the future of businesses with no clear successor. They are also demanding transactions, with distinct phases, multiple parties and risks that cost dearly those who ignore them.
In Portugal, M&A long ago ceased to be the exclusive preserve of large corporate groups. The consolidation of fragmented sectors, growing interest from foreign investors and the approaching retirement of many founding entrepreneurs have placed SMEs at the heart of this market. For anyone leading a company, understanding how the process works is the first step towards conducting it from a position of strength, whether on the buy side or the sell side.
In this article we walk through the most common types of transaction, the typical stages of a process, the parties who take part in it, and the two factors that most often dictate the final outcome: confidentiality during negotiations and integration after completion.
Types of Mergers and Acquisitions Transactions
Although everyday language treats everything as «buying a company», Portuguese law distinguishes between structures with very different effects. The Código das Sociedades Comerciais (the Portuguese Companies Code) governs mergers in the strict sense; deal-making practice adds further contractual structures.
- Merger by incorporation: one company absorbs another, which is dissolved, with its assets and liabilities transferred in their entirety to the absorbing company.
- Merger by formation of a new company: two or more companies are dissolved to give rise to a new entity.
- Acquisition of shareholdings (share deal): the buyer acquires quotas (the ownership units of a Portuguese private limited company) or shares and takes control of the company, which retains its contracts, licences, assets and liabilities.
- Acquisition of assets (asset deal): only specific assets or business units are purchased, leaving out liabilities the buyer has no wish to assume.
The choice of structure carries significant legal, employment and tax consequences. Groups holding several stakes frequently use an SGPS (a Portuguese holding company) to organise their shareholder positions and prepare future transactions. On the tax front, the treatment varies according to the structure chosen and the specific circumstances of the companies involved, so any decision should rest on a case-by-case analysis carried out before binding documents are signed.
The Stages of an M&A Process
Every transaction moves at its own pace, but most structured processes pass through four stages.
1. Preparation and Strategy
It all begins before a counterparty exists. On the sell side, preparing means putting accounts, contracts and corporate structure in order, and obtaining a realistic valuation of the business. On the buy side, it means defining clear investment criteria: sector, size, geography and price limits. Well-prepared companies negotiate better and stand up better to the scrutiny that follows.
2. Approach and Preliminary Negotiation
The approach is usually made through an anonymised company profile and, where there is interest, the signing of a confidentiality agreement. This is followed by the sharing of essential information and, if talks progress, a letter of intent setting out the indicative price, the timetable and any exclusivity periods. This document does not close the deal, but it disciplines the negotiation and reduces misunderstandings.
3. Due Diligence
Due diligence is the audit of the business across its financial, legal, tax and employment dimensions. The buyer confirms whether reality matches what was presented; the seller anticipates questions and prepares answers. Contingencies identified at this stage typically translate into price adjustments, contractual warranties or conditions to be satisfied before completion.
4. Contracts and Completion
The transaction is formalised in the share purchase agreement or the merger plan, depending on the structure. Representations and warranties, price adjustment mechanisms and liability for contingencies take up much of the final negotiation. Where the seller retains a stake or there are several shareholders, shareholders' agreements govern the future relationship: governance, transfer of shareholdings and exit rights. In larger transactions, completion may also depend on approval from the Portuguese Competition Authority.
Who Takes Part in a Mergers and Acquisitions Transaction
An M&A process is rarely a two-party affair. It involves financial advisers, who lead the valuation and the negotiation; lawyers, who structure the transaction and draft the contracts; auditors and tax specialists, who validate the accounts and identify contingencies; and, frequently, sector consultants. Within the company, it is important to confine the process to a small circle of senior management and to make sure day-to-day performance does not slip while the transaction is under way, because the counterparty will be alert to any dip in trading.
Confidentiality: Protecting Value During the Process
Information leaks are among the greatest risks in any negotiation. If employees, customers or suppliers learn prematurely that the company is in talks, the business risks losing key people, contracts up for renewal and negotiating leverage. That is why the process rests on anonymised profiles, confidentiality agreements and data rooms with controlled access, in which the most sensitive information is disclosed only once the counterparty's commitment has been demonstrated.
The price is settled at signing; the value is won, or lost, in the integration. A technically flawless transaction can fail because nobody prepared for the day after completion.
Synergies and Post-Merger Integration
The economic rationale for many transactions lies in synergies: costs eliminated by combining structures, revenues that grow through cross-selling, greater bargaining power with suppliers. Experience shows that cost synergies are easier to realise than revenue synergies, and that both demand an integration plan with owners, deadlines and metrics defined before completion, not after it.
Post-merger integration is about systems, processes and, above all, people. Retaining key staff, harmonising different cultures and communicating clearly with clients and teams weighs more heavily on the final outcome than most spreadsheets allow. The first hundred days largely determine whether the transaction delivers what it promised.
For most Portuguese business owners, buying, selling or merging a company is a once-in-a-lifetime transaction, negotiated opposite people who have done dozens. Method, preparation and good advisers cannot guarantee the outcome, but they significantly reduce the likelihood of irreversible mistakes.
At Ravina Promissora we support business owners and management teams in preparing and leading M&A transactions, often alongside generational transition processes, a subject we explore on our Business Succession page. If you are considering buying, selling or merging your business, get in touch through our contact page: we help you prepare the transaction from the very first step.