Key Points
- With both stock prices and interest rates high, strategic buyers may be more inclined to pay in stock rather than pay cash, particularly if that would mean borrowing.
- Several high-profile transactions in the technology, health care and industrial sectors have been structured as all-stock or stock-heavy deals.
- Stock consideration can be used to address uncertainty about a target’s valuation — or the relative value of the parties — and to share risk between the parties, and it benefits buyers whose shares are at or near highs.
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In the current M&A landscape, many strategic buyers are likely to favor using their own stock, rather than cash, as deal consideration. Over the last year there have been several high-profile transactions in the technology, health care and industrial sectors structured as all-stock or stock-heavy deals.
This reflects a confluence of market headwinds and tailwinds that is reshaping dealmaking strategies for sophisticated acquirers.
Risks and Headwinds: The Case Against Cash
Persistently high interest rates in the U.S. are a primary driver. They have made debt financing for cash deals significantly more expensive, eroding the appeal of all-cash transactions, and there is little consensus on when, or if, rates will return to pre-pandemic levels. As a result, even well-capitalized strategic buyers are reconsidering the opportunity cost of deploying large amounts of cash.
Beyond interest rates, broader macroeconomic risks are weighing on dealmakers. Geopolitical tensions, ranging from U.S.-China trade disputes to the war in Ukraine, have introduced new layers of uncertainty, including the threat of tariffs, supply chain disruptions and regulatory unpredictability. These factors complicate the task of forecasting future cash flows and valuing targets with confidence.
Public company valuations add another layer of complexity. Despite macroeconomic headwinds, equity markets around the world — and particularly in the U.S. — have remained robust, with many attractive target companies trading at or near all-time highs.
This dynamic creates a relative value opportunity: Buyers can use their “expensive” stock as currency, preserving cash and taking advantage of favorable market perceptions. Conversely, sellers may be more willing to accept stock consideration if they believe in the long-term prospects of the combined entity or see limited upside in a volatile cash market.
Benefits and Tailwinds: Why Stock May Make More Sense Now
Several factors are making M&A more attractive for strategic buyers, especially for those using stock consideration. First, while U.S. antitrust regulators are still active, their approach has shown signs of stabilization after the heightened scrutiny under the Biden administration.
Recent guidance and activity suggest a more predictable review process, particularly for deals that do not raise significant conventional horizontal concerns. This has emboldened buyers to pursue larger, more transformative transactions, often facilitated by stock-based structures that align the interests of both parties.
Strategic buyers benefit from being less hampered by the high-interest borrowing environment than private equity buyers. With the largest leveraged buyouts constrained by high borrowing costs and tighter credit conditions, strategic acquirers face less competition in auction processes. This dynamic allows them to negotiate more favorable terms.
The benefits of scale — always a key driver in M&A — are particularly pronounced in today’s marketplace, which is increasingly shaped by the influence of large technology platforms and network effects. For many strategic buyers, using stock to fund acquisitions enables them to pursue ambitious growth strategies without overextending their balance sheets.
In sectors where size confers a competitive advantage, stock-based deals can accelerate the path to market leadership.
Stock Consideration: A Tool for Navigating Volatility
Perhaps the most compelling rationale for stock consideration in the current environment is its utility as a tool for managing valuation risk. In volatile markets, the absolute value of a target can be difficult to pin down, with trading multiples subject to rapid swings based on macroeconomic news, sector rotation or investor sentiment.
By structuring deals as stock-for-stock transactions, buyers and sellers can effectively “share the risk” of future market movements. If both companies’ shares move in tandem, the relative value of the deal remains stable, even as absolute valuations fluctuate.
This approach is particularly advantageous when the buyer’s stock is trading at a premium to historical averages, or when both parties believe that the combined entity will be better positioned to weather market turbulence. It also allows buyers to make strategic bets on relative value, capitalizing on the market’s view of their own prospects versus those of the target, rather than being forced to justify a fixed cash price in an uncertain environment.
In Sum
By leveraging their own equity, buyers can navigate high interest rates, macroeconomic uncertainty and volatile valuations, while capitalizing on regulatory tailwinds and the benefits of scale.
As market conditions continue to shift, stock-based deal structures are therefore likely to remain a key feature of the M&A playbook for strategic acquirers seeking to create long-term value.
This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.
For further information, please contact:
Maxim Mayer-Cesiano, Partner, Skadden
maxim.mayercesiano@skadden.com
