Here is a more detailed explanation of M&A deal structures, avoiding repetition:
Stock purchase
In a stock purchase, the buyer acquires all or a majority of the target company’s outstanding shares from its shareholders. This gives the buyer ownership and control of the target company. Stock purchases are the simplest type of M&A deal, and they are often used when the buyer wants to acquire all of the target company’s assets and liabilities. However, stock purchases can also be used to acquire a controlling interest in the target company, while leaving some or all of the remaining shares in the hands of the target company’s existing shareholders.
Asset purchase
In an asset purchase, the buyer acquires specific assets from the target company, such as its factories, inventory, and intellectual property. The seller typically retains its remaining assets and liabilities. Asset purchases are often used when the buyer is only interested in acquiring certain parts of the target company, or when the seller wants to remain in business after the deal. Asset purchases can be more complex than stock purchases, as the buyer needs to identify the specific assets that it wants to acquire and negotiate the purchase price for each asset.
Merger
In a merger, two companies combine to form a new entity. This can be done in two ways:
- Statutory merger: One company absorbs the other company, and the surviving company retains its name and legal identity.
- Consolidation: Both companies cease to exist, and a new company is formed.
Mergers are the most complex type of M&A deal, as they require the integration of the two companies’ operations and management teams. Mergers are often used when the two companies are of similar size and have complementary businesses. For example, two companies that sell similar products in different markets may merge to create a more diversified company with a larger market share.
Other factors affecting deal structure
In addition to the three basic structures, there are a number of other factors that can affect the structure of an M&A deal, such as:
- Consideration: The buyer may pay for the deal with cash, stock, or a combination of both. The type of consideration paid can have a significant impact on the structure of the deal. For example, if the buyer is paying with cash, the deal may be structured as a stock purchase or an asset purchase. If the buyer is paying with stock, the deal may be structured as a merger.
- Financing: If the buyer is borrowing money to finance the deal, the lender may have requirements that affect the deal structure. For example, the lender may require the buyer to maintain a certain level of equity in the target company, or to obtain certain regulatory approvals.
- Regulatory approvals: Some M&A deals require approval from regulatory authorities, such as antitrust regulators. The regulatory approval process can be complex and time-consuming, and it can also affect the deal structure. For example, the regulators may require the buyer to divest certain assets in order to obtain approval.
Conclusion
M&A deal structures can be complex and vary depending on the specific circumstances of the deal. However, the three basic structures are stock purchase, asset purchase, and merger. Buyers and sellers should carefully consider their strategic goals, the tax implications of the deal, and the regulatory environment when choosing a deal structure.