Mergers and acquisitions guide: Understanding the M&A process

Author: The Carta Team
Read time: 20 minutes
Published date: 25 June 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

• 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?
• 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
• M&A tax implications
• What happens after an M&A deal closes?
• Looking out for your employees during an M&A

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.

M&A affects a wide range of participants. Founders sell their companies. Private equity (PE) firms acquire portfolio companies, sometimes through a leveraged buyout or a management buyout. Public corporations make strategic acquisitions to stay competitive.

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. An acquisition occurs when one company purchases another and takes ownership.

• Merger: Two companies combine into a new entity. Approval required by both companies.

• Acquisition: One company purchases the other. The buyer takes control.

M&A deal structures

There are three common structures for M&A transactions: a stock sale, an asset sale, and a merger. The type of transaction structure informs the level of due diligence required.

Merger

A merger occurs when two companies combine to form one. Common structures include:

• Reverse triangular merger: A buyer forms a new subsidiary that merges with the target company.
• Recapitalization: The current owner sells a majority stake to a private equity firm.
• Leveraged buyout: A type of acquisition financed by debt.
• Spin-out: Contributing a business line into a new entity and selling that entity.

Stock sale

In a stock sale, each shareholder in your company sells their shares to a single buyer, resulting in the target company becoming a subsidiary of the buyer.

Asset sale

An asset sale occurs when the target sells substantial assets to the buyer, while typically dissolving the company afterward.

What are the types of M&A transactions?

M&A transactions are categorized by the strategic relationship between the companies:

• Horizontal mergers: Combine two direct competitors.
• Vertical mergers: Involve companies at different stages of the supply chain.
• Conglomerate mergers: Combine companies in unrelated industries.

Why do companies pursue M&A?

Companies pursue M&A to realize synergies, where the combined entity is expected to be worth more than operating independently.

Common reasons include:

• Market expansion: Acquiring distribution or brand recognition.
• Product diversification: Adding new product lines.
• Capability acquisition: Gaining talent or technology.

What are synergies in M&A?

Synergies are classified into:

• Cost synergies: Reduction of expenses through consolidation.
• Revenue synergies: Increased sales from combined operations.

The stages of the M&A process

Enlist the help of bankers

Engage brokers and law firms to assist in finding potential acquirers and negotiating terms.

Intro meetings and pre-diligence

Preliminary discussions about valuation and initial diligence.

Document drafting and due diligence

Final document drafting occurs alongside comprehensive financial, commercial, and capitalization diligence.

Signing

After agreement on the final draft, stakeholders sign the documents.

Regulatory approval and financing secured

Determine if regulatory approvals are required, especially for larger transactions.

Closing the deal

Finalizing the deal involves official filings and payment.

What happens after an M&A deal closes?

Post-merger integration (PMI) involves combining the two businesses effectively, addressing systems, culture, and operational adjustments. Common challenges include technology integration and cultural alignment.

Looking out for your employees during an M&A

Consider the effects on employee equity and roles during the integration process. Maintain clear communication and support regarding changes in culture, compensation, and benefits.