Category: Deal structures

How a transaction is legally and economically assembled — what is bought, and how it is paid for.

17 articles in this category.

• All-cash deal — A deal in which the consideration is paid entirely in cash. Eliminates buyer-stock risk for the seller, but is taxable to selling shareholders.
• All-stock deal — A deal in which sellers receive only the buyer's shares as consideration. Can be tax-deferred for shareholders if structured as a qualifying reorganization.
• Asset purchase — A deal structure in which the buyer acquires specific assets (and assumes specific liabilities) of the target, rather than buying its equity. Generally favoured by buyers for liability and tax reasons.
• Deal structure — How an acquisition is legally and economically assembled — chiefly the choice between an asset purchase and a stock purchase, and the tax, liability and consent consequences that flow from it.
• Earnout — Deferred, contingent payments tied to the target’s post-close performance, used to bridge buyer–seller valuation gaps but a frequent source of post-closing dispute.
• Escrow — A portion of the purchase price held by a neutral third party for a specified period after closing. Acts as a ready source of funds to satisfy the seller's indemnification obligations.
• Forward triangular merger — A merger in which a wholly owned subsidiary of the buyer survives and the target merges into it. Often used for tax and liability isolation reasons.
• Holdback — Purchase-price consideration that the buyer retains rather than pays out at closing, to be released later subject to conditions. Function is similar to an escrow but with the buyer (not a third party) holding the funds.
• Indemnification — The contractual mechanism by which the seller compensates the buyer (or vice versa) for losses resulting from breaches of representations, warranties or covenants in the definitive agreement.
• Material adverse change clause — A provision allowing the buyer to walk from the deal between signing and closing if the target suffers a major, durationally significant adverse change. Heavily negotiated and rarely successfully invoked.
• Mixed consideration — A deal that pays sellers with a combination of cash, stock, earnouts, seller notes and rollover equity — by far the most common shape of modern private deals.
• Representations and warranties insurance — A policy that pays out for breaches of the seller's deal reps and warranties, replacing or supplementing the indemnification escrow. Now standard in most $20M+ private deals.
• Reverse triangular merger — A merger in which the target survives, having absorbed a subsidiary of the buyer. The most common public-company acquisition structure because it preserves target contracts.
• Rollover equity — Existing equity that the seller (often the founder or management team) retains in the post-close business rather than cashing out at closing. Standard in PE-backed deals to keep operators incentivised.
• Statutory merger — A combination governed by state corporate-law statute in which one constituent corporation absorbs the other, with the surviving entity inheriting all rights and obligations by operation of law.
• Stock purchase — A deal structure in which the buyer acquires the equity of the target entity, taking it whole — assets, liabilities, contracts and history. Generally favoured by sellers.
• Working-capital target — A negotiated benchmark — usually a trailing-12-month average — for the level of net working capital the seller is to deliver at closing. Variances above or below trigger a dollar-for-dollar price adjustment.