Mergers and acquisitions guide: Understanding the M&A process

Author:

The Carta Team

Read time:

20 minutes

Published date:

June 25, 2026

Learn the basics of M&A transactions and how to navigate the process with support, tools, and other helpful solutions in this complete guide.

Contents

• Mergers and acquisitions guide: Understanding the M&A process
• What is a merger and acquisition (M&A)?
• What is the difference between a merger and an acquisition?
• M&A deal structures
• Merger
• Stock sale
• Asset sale
• What are the types of M&A transactions?
• Horizontal mergers
• Vertical mergers
• Conglomerate mergers
• Additional types of M&A transactions
• The private equity M&A
• Why do companies pursue M&A?
• What are synergies in M&A?
• The most common situations where M&A makes sense
• How founders’ goals and life situations affect M&A decisions
• The stages of the M&A process
• Enlist the help of bankers
• Intro meetings and pre-diligence
• Modeling deal outcomes
• Basic terms and letter of intent
• Document drafting and due diligence
• Signing
• Regulatory approval and financing secured
• Closing the deal
• M&A tax implications
• What happens after an M&A deal closes?
• Looking out for your employees during an M&A
• Post-deal
• Navigating the M&A process with Carta
• Frequently asked questions about M&A
• Download Carta M&A FAQ

What is a merger and acquisition (M&A)?

Mergers and acquisitions (M&A) is the process of combining two businesses through a financial transaction. One company may purchase another outright, or two companies may merge into a single new entity. Either way, M&A is one of the most common exit strategies companies use to grow, enter new markets, or gain capabilities they do not have in-house.

What is the difference between a merger and an acquisition?

A merger happens when two companies of roughly equal size agree to combine into a single new entity. Both companies cease to exist in their original form, and shareholders on both sides receive shares in the new company. An acquisition happens when one company purchases another and takes ownership. The target company either becomes a subsidiary or ceases to exist as a separate entity.

Merger vs. Acquisition:

• Merger: Two companies combine into a new entity. Both boards approve. Shareholders on each side receive shares in the combined company.
• Acquisition: One company purchases the other. The buyer takes control. The target may continue as a subsidiary or be absorbed entirely.

M&A deal structures

There are three common structures for M&A transactions: a stock sale, an asset sale, and a merger.

Merger

A merger occurs when two companies merge together to form one company. Mergers can be financially and legally structured in different ways and even in combination with other deal types.

Stock Sale

In a stock sale, each shareholder in your company is selling their stock to a single buyer. The selling company then becomes a subsidiary of the buyer.

Asset Sale

An asset sale occurs when the target sells all or substantially all of its balance sheet assets to the buyer, and then typically the company dissolves.

What are the types of M&A transactions?

M&A transactions are categorized by the strategic relationship between the companies involved including horizontal acquisition, vertical acquisitions, and conglomerate mergers.

Horizontal mergers

A horizontal merger combines two direct competitors in the same industry.

Vertical mergers

A vertical merger is an acquisition of a company in the same industry, with expertise at different stages of the distribution.

Conglomerate mergers

A conglomerate merger combines companies in unrelated industries.

Additional types of M&A transactions

There are additional types such as concentric acquisitions, roll-ups, and bolt-ons.

The private equity M&A

Private equity firms are a type of professional investor that often specializes in buying and selling companies through M&A.

Why do companies pursue M&A?

Companies pursue M&A when the combined entity is expected to be worth more than the two businesses operating independently. Reasons include market expansion, product diversification, capability acquisition, defensive positioning, and economies of scale.

What are synergies in M&A?

Synergies fall into two categories: cost synergies and revenue synergies.

The stages of the M&A process

Here’s a look at a typical M&A process:

Enlist the help of bankers

The first two calls they generally make are to brokers and their law firm.

Intro meetings and pre-diligence

In your first meetings with potential buyers to discuss a deal.

Modeling deal outcomes

Scenario modeling allows you to visualize the expected payouts.

Basic terms and letter of intent

A letter of intent (LOI) contains terms like the purchase price of the deal.

Document drafting and due diligence

The lawyers draft the full, detailed deal agreements.

Signing

Once the lawyers agree on a final draft of the document, it’s time to sign.

Regulatory approval and financing secured

Some deals may require approval by government regulators.

Closing the deal

For larger deals, this point can take much longer.

M&A tax implications

Tax implications should be considered for both the buyer and target.

What happens after an M&A deal closes?

Post-merger integration involves combining two separate businesses into one. Key integration workstreams include systems consolidation and organizational restructuring.

Looking out for your employees during an M&A

Consideration must be paid out in a structured order, affecting employee equity.

Post-deal

Consider life after the deal for your employees and how integration will occur.

Navigating the M&A process with Carta

Carta builds infrastructure for innovators along the entire journey, supporting the management of your cap table.