Structuring an M&A Deal That Works

When it comes to mergers and acquisitions (M&A), the structure of the deal often determines whether the transaction succeeds or fails. Whether the deal is an asset versus stock purchase, merger, or hybrid, directly affects taxes, liabilities, financing, and post-closing integration. The goal isn’t just to ‘get the deal done,’ but to design one that achieves the right mix of certainty, efficiency, and risk protection for both buyer and seller.

As Robert Londin of Jaspan Schlesinger Narendran LLP puts it, “Structure and planning drive the deal bus.” That maxim captures the mindset behind careful M&A structuring: anticipate complications early, align legal, tax and financial strategies, and build a roadmap that withstands real-world speed bumps.

Choosing the Right Deal Structure

Asset Purchase

In an asset deal, the buyer cherry-picks specific assets and liabilities rather than buying the company as a whole. This approach gives the buyer flexibility by taking the valuable parts (like equipment, contracts, or IP) while leaving behind unwanted liabilities or litigation.

From a tax standpoint, asset deals usually allow a step-up in basis for the buyer, enabling future depreciation or amortization deductions. Sellers, however, may face double taxation, once at the corporate level and again at the shareholder level, especially if the seller is a C-corporation. Negotiating how the purchase price is allocated among asset classes under IRS Section 1060 is therefore critical.  There are important other considerations if the seller is a S-corporation or LLC.

Stock Purchase

A stock purchase is simpler on paper: the buyer purchases the equity of the target company, thereby acquiring ownership of all its assets and all its liabilities, whether disclosed or not. “If you buy the stock, you’re buying all the assets, and you’re assuming all the liabilities, known or unknown,” cautions Phil Buffington of Balch & Bingham LLP.

Because contracts, licenses, and employees usually remain in place, stock purchases can preserve operational continuity and avoid the need for third-party consents. On the other hand, buyers often insist on robust indemnification provisions, escrow funds, or purchase-price holdbacks to cover potential ‘skeletons in the closet’ and indemnity claims.

Merger

In a statutory merger, two entities legally combine to form one. Mergers are particularly useful in regulated industries, like finance or healthcare, where transferring licenses or permits can be cumbersome. If the transaction qualifies as a ‘tax-free reorganization’ under the Internal Revenue Code, shareholders may defer gain on the exchange. However, mergers are complex. They require shareholder approval, and dissenting shareholders may have appraisal rights.

Factors That Influence Deal Structure Choice

Choosing a structure is a critical business decision shaped by multiple variables, including the nature of the target, tax consequences, buyer type, form of consideration, and liability tolerance.

• Nature of the target: Public targets have fiduciary-out provisions and market-driven terms, while private targets focus more on indemnities and working-capital adjustments.
• Tax consequences: Each structure carries distinct tax treatment. The tax consequences of the structure you choose can have significant ramifications for both the buyer and the seller.
• Buyer type: A strategic acquirer may prioritize synergies, while a financial buyer, like a private-equity firm, will focus on cash flow and exit timing.
• Form of consideration: Deals may involve cash, stock, seller notes, or earn-outs, each affecting liquidity and risk.
• Liability tolerance: The more uncertain the target’s liabilities, the more likely an asset purchase becomes.

Tax Planning Starts Early

Tax planning is not something to tack on at closing. Both sides want tax efficiency; therefore, it is critical to get your tax advisors involved as early and often as possible, according to Michael Weis of Weis Burney LLC.

Important tax issues include:

• Capital vs. ordinary income: Sellers prefer capital gains treatment; buyers may seek ordinary deductions via stepped-up basis.
• Entity classification: S-corps, C-corps, and LLCs each bring unique tax outcomes.
• Section 338(h)(10) elections: In certain stock deals, this election allows the buyer to treat the acquisition as an asset purchase for tax purposes.
• Qualified Small Business Stock (QSBS): Section 1202 can provide a substantial capital-gains exclusion if the stock qualifies.
• Historic liabilities: Pre-closing tax exposures, such as sales tax, payroll tax, or state franchise tax, must be covered by representations and indemnities.

Aligning accountants and attorneys at the letter of intent (LOI) stage prevents re-trading and protects after-tax deal value.

Seller Preparation

In modern M&A, prepared sellers command better prices and faster closings.

A ‘prepared seller’ is one who has undertaken the following:

1. Drafts a Quality of Earnings (QoE) report: Validates profitability and adjusts for non-recurring items.
2. Audits and/or reviews financials: Lenders and buyers rely heavily on clean statements.
3. Performs data room organization: Corporate records, material contracts, HR policies, litigation files, and IP documentation should be digitized and well-indexed.
4. Conducts a compliance review: Resolve outstanding tax or regulatory issues before buyers find them.
5. Conducts an IP audit: Ensure trademarks, copyrights, and patents are registered and assignable.

As Bob Dekker of The Peakstone Group notes, “Today, sellers are doing all of this up front; it’s almost de rigueur.”

Understanding Representations, Warranties & Indemnification

‘Reps and warranties’ are the backbone of risk allocation. They confirm what the seller knows about the business and offer recourse if those statements prove false.

Mid-market deals typically include 25 to 40 representations covering everything from financial statements to compliance and litigation.

Negotiated elements include:

• Materiality qualifiers that define what breaches matter.
• Knowledge qualifiers limiting reps to what key executives actually know (or, after reasonable inquiry, should know).
• Survival periods, usually 12–24 months, for ordinary reps and longer for fundamental ones.
• Caps and baskets that limit exposure and prevent nuisance claims.
• Escrows or holdbacks as a source of indemnity payments.

A balanced indemnity structure protects the buyer without leaving the seller permanently exposed.

Payment Mechanics and Earn-Outs

How the purchase price is actually paid is an important strategic decision, with each approach having its advantages and disadvantages.

• Cash at closing provides certainty but can reduce flexibility.
• Seller notes or deferred payments spread out consideration.
• Earn-outs tie part of the price to future performance, often measured by revenue, EBITDA, or customer retention.
• Rollover equity allows the seller to keep a stake in the post-closing entity.

While ‘cash is king,’ many sellers will consider payment in the form of something other than cash for various reasons. Earn-outs are especially common when the parties disagree on valuation or when the target’s future earnings depend on integration success.

Buyer Safeguards and Post-Closing Risk

Even with careful diligence, surprises happen. Buyers can protect themselves through:

• Successor-liability clauses: These are especially important in asset deals where courts could impose liability for product claims or employment obligations.
• Insurance: Representations-and-warranties insurance (RWI) is increasingly popular, shifting risk to insurers and smoothing negotiations.
• Covenants: Non-compete and non-solicitation provisions prevent sellers from undermining value.
• Integration planning: Smooth post-closing transitions avoid the loss of key talent and customers.

The Value of an Experienced Deal Team

Having a team of experienced advisors is crucial to the success of any M&A transaction. Each plays a role in aligning structure, valuation, and execution so surprises are minimized.

“You want people who’ve been through this a lot,”  underscores Dekker.

A strong M&A team typically includes:

• Deal counsel to draft and negotiate the documents.
• Accountants and tax advisors to analyze after-tax results.
• Investment bankers or brokers to identify buyers and run auctions.
• Specialists for IP, employment, or environmental issues when needed.

When the Target Is Distressed

Distressed M&A requires a different mindset. Acquisitions under financial pressure like those done through bankruptcy, assignment for benefit of creditors (ABC), or Article 9 sale, move fast and require precise coordination.

In these cases:

• Timing is compressed with buyers often performing ‘reverse due diligence.’
• Court approval or creditor consent may dictate terms.
• Asset sales may be “free and clear” of liens, providing extra protection.
• Stalking-horse bids anchor competitive auctions.

Strategic Takeaways

M&A success is rarely accidental. With disciplined planning, informed structuring, and a team of seasoned professionals, even complex transactions can deliver durable value to both sides.

When approaching an M&A deal, it is essential to:

1. Structure the deal carefully. Deal structure shapes purchase price, taxes, liabilities, and control.
2. Plan early. Engage legal, financial, and tax advisors before the LOI.
3. Be transparent. Organized sellers earn buyer trust and better pricing.
4. Balance risk. Caps, baskets, and RWI insurance create fairness.
5.  Stay flexible. Hybrid or multi-step structures often yield optimal results.

To learn more about this topic, view Structuring and Planning the M&A Transaction. The quoted remarks referenced in this article were made either during this webinar or shortly thereafter during post-webinar interviews with the panelists. Readers may also be interested to read other articles about M&A.

This article was originally published on November 3, 2025.

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