Deal structure refers to how an acquisition is legally and economically assembled. The most consequential decision is whether the buyer purchases the target's equity (stock) or its assets, because the choice drives the allocation of liabilities, the tax outcome, and the consents required.
Stock (equity) purchase
The buyer purchases the shares of the target and takes the company as a going concern — all of its assets and all of its liabilities, known and unknown. Contracts, licences and permits generally remain with the company and transfer automatically.
- Sellers often prefer it: a clean break, and gains are typically taxed at lower capital-gains rates.
- Buyer's drawback: inherits hidden and contingent liabilities; usually no step-up in the tax basis of assets.
Asset purchase
The buyer acquires specific assets and assumes only specified liabilities, leaving unwanted obligations behind with the seller.
- Buyers often prefer it: can cherry-pick assets, avoid most unknown liabilities, and obtain a step-up in the tax basis of the acquired assets, generating future depreciation and amortisation deductions.
- Drawbacks: many contracts, permits and leases require third-party consent to assign; the process is more administratively complex; and asset sales by a C-corporation can create a double layer of tax for the seller.
Comparison
| Feature | Stock purchase | Asset purchase |
|---|---|---|
| Liabilities | All transfer | Only those assumed |
| Tax basis step-up | Generally no | Yes |
| Contract transfer | Usually automatic | Often needs consent |
| Typically favoured by | Seller | Buyer |
Bridging the tax gap
Because buyers want a basis step-up and sellers want stock-sale tax treatment, U.S. tax law offers elections — notably the §338(h)(10) and §336(e) elections — that let a transaction be a stock sale legally but be treated as an asset sale for tax purposes, sharing the benefit.
Other structural elements
Beyond the asset/stock choice, "deal structure" also covers the form of consideration (cash, stock or mix), use of an earnout to bridge price gaps, escrows and holdbacks, and the legal mechanics of a merger (such as a reverse triangular merger).
See also
- Acquisition — The purchase of one company, or its assets, by another that gains control.
- Definitive purchase agreement — The binding contract that governs an acquisition and its terms.
- Earnout — Deferred, contingent payments tied to the target’s performance after closing.
- Goodwill — The intangible asset recorded when a buyer pays more than the fair value of net assets.
- Purchase price allocation — The process of assigning an acquisition’s price to the assets and liabilities acquired.
External resources
Practitioner guides from Main Street Wealth, an M&A advisory firm:
- Complete M&A Process Timeline — Stage-by-stage walkthrough of a transaction from preparation to closing.