Blog Post M&A Deals Insights

📌 How M&A deals are structured.

Sometimes, when a company is sold, the deal is split between upfront cash (paid directly to founders) and shares in the acquiring company. This setup helps ease the burden for investors and is usually sold with the promise that “in N years, the group will be worth X times more, and you’ll either flip it at a higher price or go public successfully.”

Of course, we want to believe that — and sometimes it does play out well with massive growth and a shiny IPO. But not every story ends in success, and not every share can be sold. Or to be more precise:

Every type of share comes with its own rights and rules for how it’s valued and when (and if!) it can be cashed out.

📌 Types of Shares:

• Preferred Shares – These are premium shares typically given to direct investors (the ones bringing in actual cash). They come loaded with rights: from voting power and decision-making authority to first-in-line cash-outs during a new round or an IPO (what’s called an Exit Event – next series/rounds, M&A, or IPO).

The valuation of Preferred Shares is a complex formula involving investment size, current company valuation, and the number of shares available in the company’s share capital.

• Ordinary Shares—These give basic rights like voting and access to profit, but they are second in line when it comes to cashing out during an Exit Event. Some of their rights can be restricted by the Preferred Shareholders or through the Majority Shareholder’s decisions. Still, they’re a pretty decent package.

Their value is usually super modest at issuance (e.g., invest $100, get 100 shares). But the real win comes if the company grows big (think multi-million dollar valuation), and you get to sell them at a premium.

Ordinary Shares often go to the HQ / Acquiring Company founders. They’re low-risk financially (minimal investment) and can bring huge returns at Exit. It’s good to be HQ, buying up promising (smaller or bigger) companies using investor money.

• Acquisition Shares – These are shares issued to sellers (usually founders of the company being acquired). Technically, they are securities and part of share capital, but they don’t function like real shares. They give you merely the right to later convert them into Ordinary Shares and sell, but only at the time of a successful Exit Event (new funding round, acquisition, or IPO).

These shares have limited or no rights at all — no voting, no transferring, and the latest cash-out order. More on that below, because it’s important. 🤓

📌 What shares do you get in an M&A deal?

If you’re the founder of a company being acquired, and your M&A deal includes both cash and shares, guess what kind of shares you’ll get? Yep. Acquisition Shares.

Even though you’re selling a whole company (real asset), you don’t get the same treatment as an investor or the founders of the acquiring company (HQ). That’s just how the M&A world works. Your company sale is seen more like a “purchase” than a true investment. You get some cash now, and the potential (someday) to cash out the rest… if everything goes according to plan.

But if it doesn’t? Crisis hits, costs outrun investments, and valuation drops? Then what? Sell your shares? Sure — how, exactly?

We’ll dive deeper into Exits and share conversion in another post. For now, let’s break down what rights shares have — and what you might be giving up when you accept Acquisition Shares.

📌 Share Rights — and what you might be missing.

Acquisition Shares may look official, but they don’t automatically give you the right to sell, vote, or participate in decision-making. You could end up holding “fancy paper” 🍬 — shares that look good on paper but are hard to cash in, especially if the Exit never happens.

Here are essential share rights you should be aware of (and that Acquisition Shares often don’t come with):

• First Refusal – Your right to buy shares from another shareholder before they’re offered to third parties or stock markets.

• Pre-Emptive Rights – Your right to buy newly issued shares before the company sells them to others.

• Co-Sale Rights – The right to sell some of your shares alongside other selling shareholders.

• Tag Along Rights – Protects minority shareholders by letting them join in on any “big” sale (next round) initiated by majority shareholders.

• Participation Rights – Your chance to maintain or increase your ownership by participating in future funding rounds or Exits.

📌 What documents actually define share rights?

• Articles of Association (or Memorandum) – The main doc outlining how shares work, their rights, how they’re issued, transferred, and cashed out (converted). It covers all the Exit scenarios and sale pricing logic. This is the backbone of the company’s capital structure and share rights & conversion.

•  Global (Group) Equity Incentive Plan – Governs share issuance and rewards for key people (employees, consultants, partners, minority shareholders). It can include clauses that restrict or define how Acquisition Shares behave.

•  Company Registrar & Shareholder Register – The official record listing share types, ownership percentages, capital structure, and investment inflows.

📌 Waiving Rights — A Sneaky Move.

This one’s tricky. Rights aren’t always stripped in the main deal — they often hide in side documents like Share Grant Agreements. You might see something like this:

“The Grantee irrevocably waives any right of first refusal, pre-emptive, co-sale, tag along, participation or any similar rights… whether provided in any agreement, Articles of Association, or other company documents. And the Grantee agrees that the Company and its shareholders may rely on this irrevocable waiver”

🤓 Read that again — that’s a long list of rights you’re signing away.

So here’s the deal: you sell your company and get shares… but you can’t sell them (not to shareholders, not on the market), you can’t participate in the next funding round without a specific approval and announcement, and you are last in line if there’s an IPO.

Sure, you can wait around for a successful Exit Event and hope you’re invited to sell those Acquisition Shares for a good chunk of cash. But if things go sideways, the return you hoped for might end up being just… meh.

💡 What You Should Do:

• Carefully read your M&A agreement (Share Sell & Purchase Agreement) — especially the part about what kind of shares you’re getting.

• When signing any share issuance docs (Share Grant Agreements, Incentive Plans), check for Waivers and know what rights you’re giving up.

• Don’t be shy about negotiating. If you’re selling a company (not a couch!), you’ve got every right to push back on rights waivers.

• Request documents outlining share structure and shareholder rights — even as an Acquisition Shareholder, you’re still a Minority Shareholder, and you have that right.

• Negotiate upfront — ideally, for Ordinary Shares instead of Acquisition Shares, or at least reduced restrictions and no Waivers.

To negotiate properly, you need to understand what you’re signing. Hopefully, this breakdown helped make the whole picture a bit clearer. 🤓

The article is available in Russian on our Telegram Channel.