In the world of mergers and acquisitions, especially when it comes to acquiring another public company, there are essentially 2 ways to do it. The asset deal, which isn’t as well known, involves purchasing the individual assets of a company, such as land, machinery, patents, or other individual units of a company; on the other hand, today’s term, share deal, involves what most people typically think of when it comes to business acquisitions – buying shares of another business’ stock. While the overall concept may be well-known even outside of the business world, the term itself merits closer examination.
Breaking it down, our compound term consists of two words, share and deal.
Share, coming originally from the Proto-Germanic *skeraz by way of the Old English scearu, though it literally means ‘to cut’ can also be understood as “a part of division” of an overall object. Aside from this generalized meaning, the term first became acquainted with financial terminology in 1602, as the understanding of a specific portion of a property or entity owned by a number of people, which be found in Benjamin Jonson’s late Elizabethan satirical comedy, Poetaster, where it is written: “Commend me to seven Shares and a half.”
The second word, deal, coming from the Old English dælan, meaning ‘to divide and distribute’ or, in a sense, ‘to dispense’, has its roots in the Proto-Germanic *dailjanan, meaning the same. Again, looking at the term in the world of business, where a “deal” is taken essentially to mean the agreed upon diving and distribution of assets, property, etc. the first use of our term can be traced back to the serial publication of Canadian politician and author Thomas Chandler Haliburton’s work The clockmaker from 1837 to 1840, where he mentions that: “Six dollars apiece for the pictures is about the fair deal for the price.”
Compounding the words in a financial sense, we have the acquisition of a company via its equity shares. In other words, if you want to buy a company, you simply buy all of its shares of stock (or at least a controlling majority), at which point you will become the de facto owner of the company.
Though we can’t say for sure when the phrase “share deal” was first coined or used, with the first corporation, Vereenigde Oost-Indische Compagnie (the Dutch East India Company), initially offering shares to the public in 1602 and other companies soon following suit, it should come as no surprise that the term has definitely been around for a while.
Because of media usage, most people with a modicum of business interest, even if they’re not overly familiar with the term, have an understanding of what the term means; however, unlike Hollywood depictions or glossed-over coverage of most blockbuster mega-deals, there’s a lot of research that gets considered before deciding if a share deal is the right fit. For example, a share deal typically involves the acquisition of an entire company, instead of the particular elements that a competitor might be interested in purchasing, thus potentially limiting flexibility and increasing unnecessary purchase costs; moreover, if the company being purchased has excessive liabilities or is unstable (such as on the verge of becoming insolvent), the purchasing company will inherit these issues as well. Finally, and of the utmost importance is the issue of tax liability, with a share deal possibly lowering the overall tax burden by making a one-time purchase versus multiple smaller asset purchases.
Whether or not a share deal is the right business move requires, of course, due diligence, but, thankfully, understanding the term – simply requires reading this post.