Mergers and acquisitions of companies are becoming the most strategic choice for organizational growth which includes empire-building, market dominance, and long-term survival. In general, a merger is the combination of two companies to form one new company by transferring ownership. Whereas, in acquisitions, one company takes over another company and establishes itself as a new owner of the said company. A merger and acquisition deal structure is a binding agreement between parties thereto, that outlines the rights and obligations of both parties, it states what each party of the merger or acquisition is entitled to and what each is obliged to do under the agreement. The deal structuring is a part of the merger and acquisition process, as it is the step to prioritize the objectives of a merger or acquisition of all parties

1. STRUCTURE OF DEAL IN
MERGERS & ACQUISITIONS

2. INTRODUCTION
• Mergers and acquisitions of companies are becoming the most strategic choice for
organizational growth which includes empire-building, market dominance, and long-term
survival.
• In general, a merger is the combination of two companies to form one new company by
transferring ownership. Whereas, in acquisitions, one company takes over another company
and establishes itself as a new owner of the said company.
• A merger and acquisition deal structure is a binding agreement between parties thereto,
that outlines the rights and obligations of both parties, it states what each party of the
merger or acquisition is entitled to and what each is obliged to do under the agreement.
• The deal structuring is a part of the merger and acquisition process, as it is the step to
prioritize the objectives of a merger or acquisition of all parties.

4. There are several ways companies opt for a deal structure. there are three traditional ways
for structuring a deal in mergers and acquisitions of companies viz. asset acquisition, stock
purchase, and mergers.

5. Asset acquisition
• In an asset acquisition, the buyer purchases the assets of the selling company.
• The buyer chooses which assets it wants to purchase. Assets can be purchased with cash or
stock. If stock is used, securities laws must be complied with, which can increase expense and
time to close a sale. If a mixture of cash and stock is used, tax impacts might arise in corporate
transactions depending on the relative proportion of each component.
• Asset deals provide the best liability limitation for buyers. However, their complexity may
render them unwieldy for larger transactions and their use should be explored before
committing to any sale.
• The process can be complex and time-intensive due to the additional effort needed in finding
and transferring only the specified assets.
• Typically, the buyer will acquire a majority of the seller’s assets for a cash payment or in
exchange for its shares and ignore all liabilities linked to the assets. However, buyers may end
up losing important non-transferable assets such as permits or licenses.

6. Stock purchase
• In a stock purchase acquisition, a majority amount of the seller’s voting stock shares are acquired
by the buyer. In essence, it means control of the seller’s assets and liabilities are transferred to the
buyer.
• The target company will remain intact, but it will now be under new ownership. The purchaser
acquires all or the majority of the seller’s voting shares. The buyer fundamentally now owns all the
assets and liabilities of the seller. The purchaser needs to negotiate the representations and
warranties regarding the assets and liabilities of the business to ensure that the target company is
accurately and completely understood.
• Stock purchases are typically beneficial to sellers. The earnings of a sale are usually taxed at the
lower and long-term capital gains rate.
• Moreover, such sales are less disruptive to the day-to-day business of the company.

7. • For buyers, a stock purchase is advantageous because the seller continues to be in
charge of the operations, making the integration less expensive and shorter. The buyer
owns all the assets, contracts, and intellectual property, making the derivation of value
from the acquisition easier.
• Stock purchase negotiations also tend to be less contentious.
• One disadvantage is that, since all unsettled liabilities of the seller are acquired by the
purchaser, the buyer may be forced to inherit financial and legal problems that, in the
long run, diminish the value of the acquisition. Moreover, if the selling entity
faces divergence of shareholders, a stock purchase will not prevent them from going
away.

8. Mergers
• A merger is the result of an agreement between two separate business entities to come together as
one new entity.
• A merger is typically less complicated than an acquisition because all liabilities, assets, etc. become that
of the new entity. In a merger, when two distinct companies come together to form a single legal entity,
then the shareholders of the target company obtain cash, the stock of the buyer company, or a
combination of both.
• One main benefit of a merger is that it normally needs the approval of only a majority of the
shareholders of the target company. The process of a merger is also relatively simple. All contracts, as
well as liabilities, are passed into the new company.
• Hence, minimal negotiation about the terms is required.
• The disadvantage of this acquisition structure is that if a large enough block is formed, disapproving
shareholders are capable of thwarting the merger by deciding to vote against it.

9. IMPORTANCE
• Undoubtedly today we live in a time of significant economic change. Mergers and
acquisitions have become common business tools, implemented by thousands of
companies in the world. Driven by a philosophy of shareholder value they not only form
a new economic, social and cultural environment, but also enable strong companies to
grow faster than competitors and provide entrepreneurs rewards for their efforts,
ensuring weaker companies are more quickly swallowed, or worse, made irrelevant
through exclusion. Mergers and acquisitions are understood as a general global trend
associated with a global corporate restructuring across industries. They are a vital part of
any healthy economy and the primary way that companies are able to provide returns to
owners and investors.

10. CONCLUSION
Developing a proper M&A deal structure can be quite complicated and challenging because
of the number of factors to be considered. These factors include preferred financing
means, corporate control, business plan, market conditions, etc. Employing the right kind
of financial, investment, and legal advice can make the process less complicated. Deal
Room’s due diligence software is a project management tool designed to address the M&A
detail-time conundrum. The three traditional ways of structuring an M&A deal are asset
acquisition, stock purchase, and mergers. The methods can also be combined to achieve a
more flexible deal structure. Asset acquisition is usually the best deal structure for the
selling company if it prefers a cash transaction. In a stock purchase, the buyer acquires the
stock of the target company from its stockholders. Either the seller’s company or the
buyer’s company is reconstituted, or a fresh entity is started. In structuring a deal, the
advantages and disadvantages must be considered along with other influencing factors to
reach a conclusion on which method to adopt.