Understanding the Transaction Process and Deal Structures
How is a company acquisition structured? Share deal or asset deal, lump-sum payment or earn-out—learn about the most important transaction structures and payment models.
1 What is the process for acquiring a company?
An acquisition is a multi-step process that typically takes 6–12 months from the time the target company is identified. Here is an overview of the typical phases:
Preparation – Define the buyer profile, establish a search strategy, and determine the budget
Search & Initial Evaluation – Review listings and teasers; make an initial selection
Analysis – Sign a confidentiality agreement, review process documents, prepare a preliminary company valuation, and, if appropriate, submit an indicative offer
Getting to Know Each Other – Meet the seller’s team and ask detailed questions directly
Clarify Financing – Assess debt financing options, as they significantly influence the transaction structure and the potential purchase price
Negotiation – Finalize the valuation and transaction structure, draft a Letter of Intent (LOI), and negotiate terms
Due Diligence – Conduct a detailed review of all areas of the business
Closing – Negotiate the purchase agreement, secure financing, and close the deal
1. Preparation 2. Search 3. Analysis 4. Getting to Know Each Other 5. Financing 6. Negotiation 7. Due Diligence 8. Closing
Every deal is different—some steps overlap, while others are skipped entirely. For small deals without advisors, the process is often shorter and less formal. The important thing is that you understand the basic structure.
Depending on the size of the transaction, the timing and format of the initial price indication vary:
Structured processes (larger companies): The M&A advisor requests a written indicative offer before meeting in person. This serves as a pre-qualification—only interested parties with a suitable asking price are invited to a meeting.
Smaller transactions (under 2 million EUR): A formal indicative offer is generally not necessary. In these cases, a valuation indication —that is, a rough estimate of your asking price—is sufficient even before the initial in-person meeting. Following a positive meeting, negotiations proceed directly to the LOI stage, without an indicative offer as an intermediate step.
2 Share Deal vs. Asset Deal
The most important structural question when acquiring a company: Are you buying the company’s shares (share deal) or individual assets (asset deal)?
Share Deal – You buy the shares
What happens: You acquire the company’s shares (e.g., GmbH shares). The company continues to exist as a legal entity.
Advantages: Contracts, licenses, and permits remain in effect. Customers and suppliers often don’t even notice the change.
Disadvantages: You also assume all liabilities—including those you’re unaware of (past liabilities, back taxes).
Asset Deal – You Buy Assets
What happens: You purchase individual assets (machinery, inventory, customer base, brand, etc.). You often establish a new company for this purpose.
Advantages: You choose what you take on (“cherry-picking”). No unknown legacy liabilities.
Disadvantages: Contracts must be renegotiated or transferred. Employees may need to be transferred (§ 613a BGB).
Share deals are typically used for larger transactions. For smaller companies (with purchase prices in the low six-figure range) or companies in financial distress, asset deals are more commonly considered because they involve less risk for buyers. You know exactly what you’re buying—and what you’re not.
In a share deal, all liabilities are transferred to you—even those you are not aware of at the time of purchase. That is why thorough due diligence is especially important here. (→ Module 6: Mastering Due Diligence)
The deal structure also affects the company’s valuation. In an asset deal, you value individual assets; in a share deal, you value the company as a whole. → Module 3: Valuation & Pricing
3 Transaction Structures
In addition to the deal structure, the payment terms are a key element of the transaction. There are various models—and in practice, they are often combined. The option to use a seller loan allows for a seamless transition between transaction structures and sources of financing (equity vs. bank loans).
Immediate Payment (Closing Payment)
The entire purchase price is paid in a single lump sum at closing (when the contract is executed)
Advantage for the seller: Immediate certainty
Disadvantage for the buyer: High capital requirement all at once
Earn-Out
A portion of the purchase price is variable and tied to the company’s future performance
Typically: 10–30% of the purchase price over 1–3 years
Advantage: Risk sharing—you only pay the full price if the company meets expectations
Disadvantage: Complex structure, potential for disputes regarding the calculation
Vendor Loan
The seller defers payment of a portion of the purchase price—essentially, they’re giving you a loan
Typical: 10–30% of the purchase price, repayment over 2–5 years
Advantage: Bridges the financing gap between equity and a bank loan
Signal: A seller who grants a loan demonstrates confidence in their business
Earn-outs and seller loans are tools for ensuring a fair sharing of risk between the buyer and the seller. They demonstrate that the seller believes in the future of their company—and that’s a good sign. The goal is a balanced structure in which both parties have a stake in the success of the transaction.
Some sources on the Internet suggest that it’s possible to buy companies with virtually no equity—using only bank loans and seller loans. In practice, this isn’t realistic and comes across as unprofessional to sellers and advisors.
Earn-outs and seller loans are intended to share risk—not to shift the entire risk onto the seller. No experienced seller will agree to a structure in which the buyer does not contribute any of their own money. An appropriate equity stake (typically 20–40%) is not only a prerequisite for bank financing but also a sign of your seriousness as a buyer.
You’ll learn how to draft the payment terms in the LOI in → Module 5: Offer Strategy and LOI Negotiations. The financing of the purchase price (equity, bank loans, grants) is covered in greater detail in → Module 7: Acquisition Financing.
4 What does this mean for you as a buyer?
The choice of transaction structure and payment model has far-reaching consequences—tax, legal, and financial. Here is an overview:
Typical combination for small deals
Asset Deal + Upfront Payment + Seller Loan – The most common structure for deals under 2 million EUR
The split between payment at closing and a seller loan depends on the attractiveness of the company and the level of competition among buyers in the process
Optional: A small earn-out component (5–15%) as an additional form of risk sharing
What You Should Keep in Mind
Tax implications – Share deals and asset deals are treated differently for tax purposes. A tax advisor is required.
Liability risk – In a share deal, you bear all risks; in an asset deal, only those you consciously assume
Financing – Banks often find it easier to finance asset deals because the assets serve as collateral
Negotiating position – The deal structure is negotiable. The seller often prefers a share deal (which is more tax-efficient for them).
Be sure to consult with a tax advisor and an attorney before you decide on a deal structure. This decision has long-term consequences that go beyond the purchase price.
- Share Deal vs. Asset Deal: The choice depends on the size and circumstances—for small deals and distressed cases, the asset deal carries less risk
- Transaction Structure = Risk Sharing: Earn-outs and seller loans are tools for fair risk sharing, not risk shifting
- No Purchase Without Equity: Those who do not contribute their own capital will not be taken seriously in the market
- Clarify financing before negotiations: Debt financing influences the transaction structure and the potential purchase price
- Consult a tax advisor and an attorney: The choice of structure has tax and legal implications
Answer 5 questions about transaction structures. All answers must be correct to complete the module.
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