What is a share swap deal?

1. In a merger or an acquisition, shares can be used as “currency” to buy the target company without having to pay cash.

2. If Company A wants to acquire Company B using share swap deal, A gives B’s shareholders some of its own shares in exchange of each share of B they own. B shares cease to exist after deal.

3. Each company’s shares are accurately valued in order to determine a fair swap ratio. In a 3-for-1 exchange, 50 shares of Company B would get swapped for 150 shares of company A.


4. The M&A deal can be 100% through share swaps or it can be used along with part cash payments to shareholders of the target firm.

5. Unlike a cash transaction, in a share swap transactions, the synergy risk is shared by shareholders of both acquiring and target companies.


The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta