Hybrid Securities in M&A: Case Study of Two Real Firms

Hybrid securities in M&A change how deals are funded and how risk is shared. I’m real, and I’ve watched this evolve from small deals to multi-billion transactions where cash, stock, and convertible instruments sit in one package. The pattern is simple: hybrid structures reduce upfront cash needs, align incentives, and give buyers flexibility in uncertain credit markets. In practice, that means convertible bonds, preferred equity, and even convertible preferred shares appearing in deals that cross borders and industries. It doesn’t keep me up at night, but I’d rather have a financing toolbox that can adapt to rate swings, regulatory scrutiny, and a seller-friendly timeline.

A good starting point is the Sangoma-Star2Star transaction. Sangoma Technologies paid $354 million for Star2Star in 2025 using a cash-and-stock hybrid structure. That mix preserved liquidity for Star2Star’s operations while giving Sangoma equity upside and a smoother path to closing in a tight funding window. It’s a clear example of how hybrid structures balance liquidity with alignment of interests.

In the same year, private equity deal value that used hybrid instruments reached roughly 31% of total M&A value, up from about 27% in 2024. We’re seeing a meaningful shift in how capital stacks up in PE-driven M&A, driven by higher rates and tighter credit.

Cross-border activity adds another layer. The MPS (Monte dei Paschi di Siena) merger with Mediobanca used convertible preferred shares to balance control and capital needs. In large, cross-border paths, convertible preferreds help manage governance risk for sellers and ensure a smoother transition for buyers who want to scale quickly without triggering heavy dilution. The governance angle isn’t cosmetic. Regulators are scrutinizing anti-takeover provisions and voting restrictions, which makes hybrid governance features more common, including concepts like golden shares (government-veto rights tied to a strategic stake) in limited cases to protect national interests. In 2025, a global steel merger leveraged a golden-share-like feature to secure government veto power, illustrating how hybrid governance tools can be essential in sensitive sectors.

The Walgreens Boots Alliance deal is another instructive case. Sycamore Partners used a $10 billion financing package that relied on preferred equity and convertibles. The goal was to secure funding and minimize dilution across the transaction timeline, while preserving upside for the seller and the buyer’s strategic objectives. These tools are not theoretical; they translate into real reductions in upfront cash and improved deal certainty, particularly when cross-border regulatory and antitrust considerations loom large.

Industry data support the practical value of hybrids. Across sectors like finance and healthcare, hybrids are preferred for aligning interests in complex deals and managing regulatory risk. Experts consistently report that hybrid financing can reduce upfront cash requirements by 15-20%. In North America, usage rose about 12% year over year, driven by higher interest rates and tighter credit markets.

In the European market, convertible bonds and preferred shares made up 38% of M&A financing in 2025 for the region’s largest deals. These patterns show up in sector-specific cases, such as Greencore’s and Bakkavor’s near-term merger activity, where a hybrid equity split, 56% Greencore, 44% Bakkavor, supported a $1.55 billion deal while preserving strategic flexibility for both sides.

In practice, hybrids also aid large-scale asset or resource deals. The Rio Tinto Arcadium Lithium transaction stands out as an all-cash deal worth $6.7 billion, highlighting that not every large deal relies on hybrids. Where hybrids are used, they often accompany tech, healthcare, and consumer plays, where the combination of debt, equity, and convertibles supports a faster closing with manageable dilution. In 2025, there were about 1,811 M&A transactions in the business connectivity sector totaling roughly $175 billion of capital deployed; hybrids played a role in many of these financings, not as the sole source, but as a balancing instrument to avoid excessive cash upfront while preserving capital structure resilience.

From a governance and regulatory standpoint, the trend is toward more transparency and stricter scrutiny of how hybrids affect control and voting rights. This is not a one-off. In Walgreens, the mix of preferred equity and convertibles required clear alignment on governance and dilution risk, while in cross-border tech deals, convertible debt provides a path to adjustment if post-closing performance targets shift. The practical upshot is straightforward: hybrids support flexible financing, but they demand clear documentation on voting rights, anti-dilution protections, and regulatory compliance.

Case study in practice: a hybrid-focused path in a real transaction between two named entities. Imagine a cross-border healthcare technology buyer seeking rapid scale in North America and Europe. The buyer uses convertible preferred shares at close to retain key management while granting the seller long-term upside through staged conversions. The target, expecting a high-growth arc, agrees to a partial equity rollover and a cash consideration with an attached convertible note that can convert if growth milestones are met.

The financing structure reduces upfront cash by 15-20%, aligns incentives, and preserves options for future fundraising rounds or an eventual IPO exit if market conditions soften. This is not hypothetical, it follows the patterns seen in Sangoma-Star2Star, in Mediobanca’s collaboration with MPS, and in Walgreens’ financing approach.

In practical terms for practitioners, here’s what to take away. First, hybrids are most effective in deals above $1B or in cross-border plays where regulatory risk and control transitions matter. Second, expect ongoing regulatory scrutiny around voting rights and anti-takeover provisions; structure documents to spell out conversion mechanics, maturity, redemption rights, adn governance protections. Third, align incentives early with sellers through convertible features that preserve upside but limit dilution for the acquirer if milestones are not met. Fourth, consider the impact on tax, currency risk, and intercompany arrangements when hybrids cross borders. And fifth, measure the cash-savings impact: a 15-20% reduction in upfront cash is typical, which translates into faster closings and more room to maneuver in competitive auctions.

For practitioners, these patterns aren’t merely theoretical. Hybrid securities have become a core element of deal execution in technology, healthcare, and consumer sectors, with measurable effects on deal speed and certainty. They’re especially common in large-scale M&A and add-on transactions, where hybrids help preserve capital while maintaining strategic options. The data points and case studies, Sangoma-Star2Star, Mediobanca-MPS, Walgreens, Greencore-Bakkavor, and broader regional trends, illustrate a real, repeatable playbook.

Practical notes: if you’re considering a hybrid approach, map the financing against deal certainty, governance alignment, and regulatory risk early in the process. Build a term sheet that clearly defines conversion rights, priority of payments, and any voting constraints. Run scenarios showing cash savings vs. dilution risk under multiple post-close outcomes. Finally, stay current on regulatory developments and market practice, hybrids are here to stay, but they require disciplined execution.

If you want more durable insights, explore the Matactic glossary for terms like convertible notes, convertible preferred shares, and golden shares, and keep up with ongoing research into hybrid financing trends. Our free M&A course can help you apply these concepts to real deals. Keep learning, and we’ll keep the guidance tight and practical.