Mergers and Acquisitions – choosing a deal structure

Until you come face-to-face with the reality of selling a business, it is easy to think of it as being like selling any other asset; you relinquish ownership in exchange for immediate payment. The reality is that M&A transactions are often far more complicated and can be structured in seemingly infinite ways.

The simple

The most straightforward deal structure is a share purchase, which sees the business transferred wholesale as a single entity to the new owners, complete with assets, employees and most contractual arrangements intact.

This has the benefit of allowing a clean break for the existing owners and enabling the business to continue trading with little-to-no disruption.

The slightly more complicated

Where a purchaser wants existing owner-managers to stay on with the business, a deal will often be structured with earn-outs and share considerations in the new parent company to offer incentives to continue growing and developing the business.

These earn-outs will often take place over several years and be subject to meeting tough objectives. They allow for a long-term transition of the management of the business, again reducing disruption.

The partial

A business does not necessarily have to be sold as a total entity. Certain assets or operational arms can be sold off from the rest of the business. This might follow a change in strategic direction, for example where a particular arm does not fit well with a new overarching approach as a business.

The mixing

A merger will see the operations and legal structure of two previously separate entities join together as one. Some mergers will see one business essentially subsumed into another, while others will see an entirely new brand emerge.

The sale to employees

Selling to employees could be a management buy-out or it could involve selling the business into an employee ownership trust. This option can offer significant tax benefits, and strong incentives to employees and maintain stability in the business.

Of course, there are numerous possible variations on these archetypal deal structures and the precise arrangements will be hammered out between buyers and sellers and their representatives.

The crucial point on either side of the deal is to ensure that the structure serves your aims as a business owner and your ambitions for the business.