Deal Structuring in M&A

Once a buyer and seller shake hands in M&A, the deal is structured to benefit both the parties. Primarily, there are 3 ways in which the same can be done:

 1. Share Purchase: The buyer buys all the shares (equity) of the seller business (company). This is done when the founders/owners of the seller company take a 100% exit from the business.

For instance, when Uber decided to exit from the food delivery market in India, Zomato acquired Uber Eats in an all-stock deal in 2020. The purchase consideration was paid as stocks/equity in Zomato, which later on went on to listing on stock exchange in 2021, which gave a high yield to Uber.

2. Asset Purchase: In India, the acquisition by asset purchase is also termed as ‘Slump Sale’. The parties agree to Slump Sale in circumstances where the seller wants to discontinue a particular division/class of their business or the acquirer is interested only in a certain line of business of the seller. In such cases, the assets (tangible and intangible) of the specific division are transferred to the buyer by way of Slump Sale Agreement, in return of cash or stock.

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 3. Mergers: Merger is when 2 or more existing independent entities combine to form a new single entity. Mergers are usually executed when the entities decide to work together to exploit the synergies of the businesses. Mergers are usually all stock deals – where the shareholders of all the entities get equity in the merged entity. There are various types of mergers:

a. Vertical Merger is where the companies in the same supply chain merge to form a single entity providing multitude of goods/services to single end product

b. Horizontal Merger is when competing companies merge with each other to form a bigger company and hence larger share of the market.

c.  Market Extension Merger is a sub-type of horizontal merger, where the companies operating in the same industry in different markets merge.

d. Product Extension Merger happens between companies operating in similar products in the same market.

e. Conglomerate Merger is a merger between totally unrelated companies with respect to products and markets.