Discussions during the early phases of the negotiating process often are nuanced. Any reference to purchase price by the potential acquirer is usually verbal, vague, and expressed in a range or formula (e.g., multiple of earnings). Sellers routinely move aggressively to get the buyer to state as high an offer price with as few caveats as possible before granting the buyer the right to examine detailed financial statements, operations, etc. Buyers use the lack of access to proprietary data as a reason for being vague and noncommittal about price. Thus, the process of getting agreement on price often is elusive, laborious, and sometimes highly contentious.

Part IV describes various aspects of the negotiating process and how deal structuring and financing are inextricably linked, how consensus is reached during the deal-structuring (or bargaining) process, and the role of financial models in closing the deal. The output of the negotiating process is an agreement or deal structure between two parties (the acquirer and the target firms) defining the rights and obligations of the parties involved. The deal structure also establishes what is being acquired (stock or assets), assumed liabilities, the amount of payment that must be financed, and the form of payment: cash, stock, or both. Whether what needs to be financed can in fact be funded determines whether the deal gets done.

Chapter 11 outlines the major facets of the deal-structuring process, including the acquisition vehicle and postclosing organization, the form of acquisition, the form of payment, and the legal form of selling entity and how changes in one area of the deal often impact significantly other parts of the agreement. Specific ways to bridge major differences on price and to manage risk are also discussed.

Chapter 12 addresses tax considerations, including alternative forms of taxable and nontaxable structures, and how they impact reaching agreement. The implications of the 2017 Tax Cuts and Jobs Act for mergers and acquisitions are addressed in detail. This chapter also discusses how business combinations are recorded for financial-reporting purposes and the impact on reported earnings.

Chapter 13 focuses on the ways in which M&A transactions are financed, the role played by private equity firms and hedge funds in financing highly leveraged transactions, and the impact of recent US tax legislation on such deals. This chapter also discusses how leveraged buyouts (LBOs) are structured and create value. LBOs in this chapter are viewed as financing strategies.

Chapter 14 concentrates on applying financial modeling to value and structure M&As in both stock and asset deals. The strengths and limitations of such models also are discussed, as well as how models can be used to estimate the impact on EPS and credit ratios of alternative deal and financing structures. This chapter also describes in detail how to quantify synergy, the mechanics of estimating the value of options, warrants, and convertible securities in the context of financial modeling, lists common sources of data used in the modeling process, financial statement illustrations, model workflow diagrams, and the logic underlying offer price determination.