16 April 2024

Navigating the M&A environment: Cash vs. equity transactions

In 2022, buyers chose stock or stock and cash as the payment method for about one-third of M&A transactions in the US. By contrast, just under 2% of large transactions three decades ago were settled entirely in shares.


In a cash transaction, the roles of the parties involved are clear, as the exchange of cash for shares allows for a simple transfer of ownership. In a share deal, however, the identification of buyer and seller is less clear. There are cases where the shareholders of the acquired company may end up owning a majority of the acquiring company. There are advantages and disadvantages to each option and considering these is essential for both buyers and sellers. So which option to choose?

Cash Transactions

In a cash acquisition, the acquiring company buys another entity solely with cash, without issuing any stock. This transaction type offers immediate liquidity to the shareholders of the target company and streamlines the deal's structure.

An example of an all-cash transaction was the acquisition of Seagen by Pfizer last year. Pfizer acquired all outstanding common stock of Seagen for $229 in cash per share, for a total enterprise value of approximately $43 billion.


  • Certainty and Liquidity: Cash transactions offer immediate liquidity to the selling shareholders, providing certainty of value and eliminating market risk associated with holding stock.
  • Simplicity: Cash deals are often simpler and faster to execute compared to stock transactions, as they involve fewer regulatory and legal complexities.
  • Control: Buyers may prefer cash transactions as they allow them to retain full ownership and control of the company without diluting existing shareholders' interests.


  • Capital Constraints: Cash transactions require the buyer to have sufficient liquidity or access to financing, which may limit the number of deals they can pursue in the future and the size of transactions they can undertake.
  • Tax considerations - When the seller receives cash, it triggers a taxable event, requiring them to pay taxes on any capital gains. Depending on the seller's tax circumstances, this can result in significant costs.
Stock Transactions

A stock acquisition occurs when the acquiring company buys another entity solely using its own stock, without involving cash. In these transactions, the shareholders of the target company receive shares of the acquiring company's stock in exchange for their own shares.

One major advantage is that the acquiring company can maintain its cash reserves for other purposes. Alternatively, if they lack substantial cash reserves initially, they can avoid the need to seek external financing to facilitate the deal.

Similarly, for shareholders of the acquired company, there are considerable benefits. By receiving payment in the form of stock rather than cash, they can retain ownership of the stock, thereby deferring any capital gains taxes associated with the buyout. Additionally, there's the potential for growth in the new entity and the possibility of financial rewards stemming from it.

An example of an all-stock transaction was the acquisition of Hess by Chevron last year. Chevron offered 1.025 of its shares for each Hess share, or about $171 per share, implying a premium of about 4.9% to the stock's last close. The total deal value is $60 billion, including debt.


  • Potential Upside: Stock transactions offer selling shareholders the opportunity to participate in the future growth and success of the combined entity, potentially providing greater long-term value compared to a cash offer. Buyers can also align the interests of the acquiring and target companies' shareholders, fostering collaboration and maximizing synergies between the two entities.
  • Flexibility: Stock transactions provide buyers with greater flexibility in structuring the deal, such as offering a mix of cash and stock to mitigate risk or using solely stock to finance acquisitions without depleting cash reserves.
  • Tax Deferral: Depending on the tax jurisdiction and structure of the transaction, stock deals may offer potential tax deferral benefits for selling shareholders, allowing them to defer capital gains taxes until they sell the acquired shares.


  • Market Volatility: Stock transactions expose selling shareholders to market fluctuations and the inherent volatility of the acquiring company's stock price. Determining the fair exchange ratio and accurately assessing the value of the target company’s shares can also be challenging and require sophisticated financial analysis.
  • Regulatory Scrutiny: Stock transactions often face greater regulatory scrutiny and shareholder approval requirements compared to cash deals, particularly in cases involving publicly traded companies.
  • Dilution: Stock transactions can result in dilution of ownership for existing shareholders of the acquiring company.

While cash transactions offer immediate liquidity and are simpler, equity transactions offer the potential for long-term appreciation of shares in new entity and synergies. Ultimately, the optimal payment method depends on market conditions, financial health, the specific circumstances of the transaction, the preferences of both parties and their strategic objectives.