What is an M&A Deal Structure?
An M&A deal structure is a binding agreement between parties in a merger or acquisition
(M&A) outlining 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. Simply
put, a deal structure can be referred to as the terms and conditions of an M&A.
Basics of an M&A Deal Structure
Mergers and acquisitions involve the coming together (synergizing) of two business entities to
become one for economic, social, or political or other reasons. A merger or acquisition is
possible only when there is a mutual agreement between both parties, the agreed terms on which
these entities are willing to come together is known as an M&A deal structure.
The process of creating or developing a deal structure is known as deal structuring. Deal
structuring is a part of the M&A process; it is one of the steps that must be taken in a merger or
acquisition. It is the process of prioritizing the objectives of a merger or acquisition and ensuring
that the top-priority objectives of all parties involved are satisfied considering the weight of risk
each party can bear. Initiating the deal structuring process requires all parties involved to state:
•Their stance on the negotiation;
•Observable latent risks and how they could be managed;
•How much risk they can tolerate; and
•Conditions under which negotiations may be canceled.
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, accounting policies, etc. Despite the
complicated nature of the deal structuring process, employing the right kind of financial,
investment and legal advice can make the process less complicated.
Ways of Structuring an M&A Deal
There are three well-known traditional ways of structuring a merger acquisition deal although, in
recent times, business entities have engaged in other deal structuring methods on a note of
creativity and flexibility. The three ways of structuring an M&A are asset acquisition, stock
purchase, and mergers; they can also be combined to achieve an even more flexible deal
structure.
1. Asset Acquisition
In an asset acquisition, the buyer purchases the assets of the selling company. An asset
acquisition is usually the best deal structuring means for the selling company if it prefers a cash
transaction; this is because an asset acquisition normally involves a cash transaction unless an
agreement is reached on some other means of payment. The buyer chooses which assets to
purchase and for which to assume responsibility.
