When one company buys another, the structure of the deal decides who gets paid, what's taxed, and what risks transfer. Here's how acquisitions are actually built.
Mergers and acquisitions — M&A — are how companies grow by combining rather than building. Behind every headline acquisition sits a set of structural decisions that determine who gets paid, what gets taxed, and which risks transfer to the buyer. This guide walks through how acquisitions are actually put together, in plain English.
The terms get used interchangeably, but there’s a distinction. In an acquisition, one company buys another and the target is absorbed. In a merger, two companies combine into a new combined entity, often framed as a partnership of equals. In practice most “mergers” have a clear acquirer, but the framing matters for how the deal is sold to shareholders and the public.
One of the first structural choices is what the buyer actually purchases.
The buyer acquires the target’s shares directly from its shareholders and takes ownership of the entire company — its assets, contracts, and crucially its liabilities. It’s simpler to execute because contracts and licences usually stay in place, but the buyer inherits any hidden problems, from lawsuits to tax debts.
The buyer cherry-picks specific assets and liabilities rather than buying the whole entity. This lets a buyer avoid unwanted liabilities and often carries tax advantages, but it’s more complex — each contract may need to be reassigned, and the leftover shell stays with the seller.
The consideration — what the seller receives — comes in three main forms, often blended:
The mix signals confidence. An all-cash deal says the buyer is certain; a stock-heavy deal shares both the upside and the risk with the seller.
Most acquisitions follow a recognisable sequence:
Diligence is where deals are validated or killed. Buyers verify the numbers, uncover liabilities, and check that the value they’re paying for is real. A finding here can lower the price, reshape the structure, or end the deal entirely.
Acquirers usually pay a premium over the target’s standalone value — for a public company, often well above the current share price. The justification is synergies: cost savings from combining operations, or extra revenue from cross-selling.
The hardest part of M&A isn’t agreeing a price — it’s realising the synergies that justified the premium.
Many acquisitions destroy value because the promised synergies never materialise and the buyer simply overpaid. Integration — merging teams, systems and cultures — is where deals succeed or fail long after the headline.
Large deals must clear antitrust regulators, who assess whether the combination reduces competition. Reviews can take months, attach conditions (such as forcing the buyer to sell off a business unit), or block the deal outright. A signed agreement is not a closed deal until the regulators sign off.
When a deal is announced, look past the price tag. Is it cash or stock — and what does that say about the buyer’s confidence? What’s the premium, and what synergies are supposed to justify it? Are there regulatory hurdles that could delay or sink it? The structure of an acquisition tells the real story: who’s taking on the risk, who’s getting paid how, and whether the logic actually holds together.