Merger & Acquisition (M&A)

Merger and Acquisition refers to transactions in which one company purchases another (acquisition) or two companies combine to form a new entity (merger). For startup founders and early investors, an M&A transaction is one of the most common liquidity paths — especially for companies that have achieved product-market fit but may not yet meet the scale or profitability thresholds for a public listing.

Types of M&A deals vary significantly in structure. A full acquisition transfers 100% ownership to the buyer. A majority stake acquisition leaves founders and some investors with residual holdings under a new parent. An acqui-hire — increasingly common in the Indian tech ecosystem — is a transaction primarily motivated by the acquiring company's desire to bring the target's team on board, with the product or technology being secondary. Deal consideration can be cash, stock in the acquiring company, or a combination.

How M&A interacts with the cap table is where complexity concentrates. Liquidation preferences held by preference shareholders (typically VCs) determine who gets paid first and how much, before common shareholders (often founders and employees with ESOPs) receive anything. In a low-value exit, these preferences can leave founders and ESOP holders with minimal proceeds — a key reason founders negotiate preference terms carefully at the time of investment.

Regulatory considerations in India include approval from the Competition Commission of India (CCI) for deals above specified thresholds, and — for deals involving foreign acquirers — compliance with FEMA (Foreign Exchange Management Act) guidelines. Cross-border acquisitions must also meet SEBI requirements if any public-market securities are involved.