The Case for All-Stock Mergers in an Elevated Rate Environment

The M&A market in 2026 is two-speed. At the top end, large corporations with deep balance sheets and access to private credit are moving aggressively. Many of the largest transactions announced in 2025 — from Union Pacific's $71.5 billion combination with Norfolk Southern to Devon Energy and Coterra Energy's $58 billion merger of equals — were structured as all-stock swaps or equity-heavy transactions, allowing large-cap companies to bypass the high cost of debt that continues to constrain smaller buyers. [1]

For everyone else, the economics are more difficult. Although the Federal Reserve began cutting rates in late 2025, the pause in cuts during early 2026 has kept the cost of capital elevated enough to deter debt-dependent acquirers at the smaller end of the market. [1] There is, however, a structure that sidesteps this problem entirely.

What Happens to Deals When Rates Are High

Most acquisitions are financed with debt. A buyer borrows money, pays for the target, and services the loan from the acquired business's future cash flows. When rates are low, this is manageable. When rates are elevated and lending standards are tight, the entire equation shifts.

Higher borrowing costs reduce the maximum price a debt-financed buyer can justify paying, because more of the target's future earnings must be reserved for debt service rather than returns to the buyer. Lenders, conscious of increased default risk in a high-rate environment, apply more stringent underwriting standards, narrow leverage ratios, and longer approval timelines. [2] The result is a widening bid-ask spread: sellers hold firm on valuation while buyers cannot support the price with debt. Deals stall.

This dynamic has created what analysts at Deloitte describe as a bifurcated market: high-quality assets commanding premium multiples because large, well-capitalised buyers with strong balance sheets are competing for them, while the rest of the market faces a tougher environment. [3] PwC's 2026 M&A outlook estimates that between $5 trillion and $8 trillion of investment may be required over the next five years to fund AI technologies and enabling infrastructure alone — placing further upward pressure on the long-term cost of capital as sovereign wealth funds, hyperscalers, and private credit compete for the same pool of debt. [4]

The All-Stock Structure

An all-stock merger removes the financing constraint from the transaction entirely. No debt is required. No lender must approve the economics. No future cash flows must be reserved for debt service. The deal closes on the strength of two parties' agreement about relative value.

For the company being acquired, the structure offers several advantages that cash deals and leveraged buyouts cannot match. There is no risk that a financing contingency delays or kills the deal. There is no debt loaded onto the business post-close, which means the operational focus remains on running and growing the company rather than servicing acquisition liabilities. Management and shareholders receive equity in a combined, listed entity with ongoing liquidity — rather than cashing out into a concentrated private position or accepting a compressed valuation in a cash deal.

For the acquirer, the all-stock structure is capital-efficient and scalable. Each acquisition strengthens the platform without depleting cash reserves, and the combined entity's growth in NAV per share increases the acquisition currency for subsequent transactions.

Why This Matters More Now

Global dealmaking has become increasingly polarised. Large corporates and well-capitalised sponsors are able to transact through complexity; smaller buyers face a narrowing set of viable structures. [3] For public companies in the $30 million to $300 million market capitalisation range, the options available in the current environment are stark. Remain independent and absorb the cost of being listed — the compliance burden, the quarterly scrutiny, the analyst neglect — with no reliable access to capital markets. Seek a cash sale at a depressed valuation. Or find a partner who understands the underlying value and can offer a structure that works regardless of where rates sit.

Altuva offers that third path. And critically, the structure does not depend on a rate environment. It works when credit is tight and when it is loose. It works when markets are falling and when they are rising. The only requirement is that both parties agree on what the business is worth and believe in the logic of the combined platform.

What the Partner Company Gets

When a company merges with Altuva through an all-stock transaction, the management team and shareholders receive equity in a NASDAQ-listed holding company with a growing portfolio of acquisitions, a compounding NAV-per-share model, and a team with over 160 years of combined experience in special situations and complex capital structures.

They retain meaningful ownership in the combined entity. They gain access to a platform actively working to close the gap between their company's market price and its actual value. And they avoid the friction that characterises heavily leveraged acquisitions: no debt load post-close, no exposure to future rate movements on acquisition financing, no pressure to generate cash specifically for debt service.

For dealmakers, predictability now matters as much as rate levels. Improved rate visibility and structural certainty are expected to support increased dealmaking activity in 2026, particularly for well-prepared buyers who can offer execution certainty. [3] An all-stock merger with Altuva provides that certainty: it does not require a financing window to open, a lender to approve, or a market rally to make the economics work.

The Long View

We built this structure deliberately. Not because it is clever, but because it is durable. It works in rate cycles up and down. It keeps the focus on what matters: the quality of the business and the long-term value of the combined platform.

If you lead or advise a public company that is looking for a different kind of path forward, we would like to hear from you.

Altuva Group is a NASDAQ-listed public holding company focused on acquiring undervalued public companies through all-stock mergers.

-

FOOTNOTES

[1] FinancialContent / MarketMinute. "The Great Divide: Inside the 'K-Shaped' Recovery of the 2026 M&A Landscape." markets.financialcontent.com, March 2026. Large-cap mergers structured as all-stock swaps to bypass high debt costs; Federal Reserve brought funds rate to 3.50%–3.75% before pausing in January 2026.

[2] USC Business Law Digest / Koley Jessen. Research on interest rates and M&A. Higher borrowing costs increase default risk, tighten lender underwriting, and compress achievable deal prices for debt-dependent buyers.

[3] Deloitte. "2026 M&A Trends Survey: A Tale of Two Markets." deloitte.com. Dual-market dynamic; large acquirers able to transact through complexity; dealmakers should focus on middle and smaller markets in 2026; improved rate predictability expected to support deal activity.

[4] PwC. "Global M&A Industry Trends: 2026 Outlook." pwc.com. External estimates suggest between $5tn and $8tn required over next five years to fund AI technologies and enabling infrastructure; sources include BlackRock 2026 Investment Outlook and KKR Investment Insights.