M&A Deal Structuring – Interview Cheat Sheet
1. Form of Consideration (Cash vs Stock vs Mixed)
- Cash: Simple, fast, but uses the buyer’s cash reserves or increases debt. Good for
certainty, but risky if the buyer overextends.
- Stock: Buyer gives their own shares as payment. Less strain on cash, but dilutes
ownership and shifts market risk to the target.
- Mixed: Combines both cash and stock, balancing liquidity and risk between both
parties.
2. Valuation & Premium Offered
- Buyers usually pay a premium over the target’s current share price.
- Key question: Is the buyer overpaying (destroying value) or underpaying (risking deal
rejection)?
3. Financing Structure
- Deals can be financed using internal cash, bank loans (debt), or by issuing new shares.
- Important to consider the impact on interest costs, leverage ratios, and dilution.
4. Tax Considerations
- Tax-efficient structuring can benefit both sides.
- In an asset deal, buyers may prefer a ‘step-up’ in asset value for depreciation benefits.
- Sellers might prefer a share sale to reduce taxes on gains.
5. Regulatory and Antitrust Issues
- Especially important in cross-border or large deals.
- Government approval may be required (e.g. antitrust regulators).
- Delays or conditions can affect the timing or structure of the deal.
6. Ownership & Control
- Post-deal ownership split: How much of the combined company will each side own?
- Governance: Will target shareholders get board seats? Who stays in management?
7. Earn-outs / Contingent Payments
- Deferred payments based on future performance (e.g. hitting revenue targets).
- Helps close valuation gaps when future results are uncertain.
8. Integration Plan
- Critical for making the deal work after closing.
- Includes combining operations, retaining key employees, and managing customer
relationships.
- Poor integration is a major reason why deals fail.
0
