Article
How do small public companies use stock to make acquisitions?
Most small public companies make acquisitions with cash raised from long-term investors, plus some stock, a seller note or an earnout. Paying mostly in stock rarely works, because sellers who want cash sell the shares. Being public helps most by making the company a credible buyer and making it easier to raise the cash.
Joel Arberman, Meraki Partners · Reviewed October 2026. Based on 17 companies taken public since 1999: 11 by direct listing, 4 by reverse merger and 2 by IPO.
Why not pay sellers mostly in stock?
A seller who wants cash will sell the shares, and that selling pushes the price down for every other shareholder. Shares sold to long-term investors for cash sit in tighter, steadier hands. So the better model is usually to raise cash and pay the seller in cash, using stock as one part of the deal rather than the whole of it.
What does a typical acquisition deal look like?
There is no standard split. Deals combine some of these, depending on the industry, the buyer and the seller:
- Cash at closing
- Common shares
- Preferred shares
- A seller earnout tied to future results
- A seller note paid over time
What does a real example look like?
In 2024, Onfolio Holdings (Nasdaq: ONFO), which we took public, acquired 70% of Eastern Standard, a digital agency with $4 million in revenue and $630,000 in EBITDA the prior year. The $1.66 million price was paid with $410,000 in non-convertible Series A preferred shares and $1.25 million in secured promissory notes, with no upfront cash and no new common stock. The seller accepted those terms because the buyer was a public company with audited numbers and a record of closing.
Why does being public help with acquisitions?
- Deal flow. Brokers and sellers take a public buyer seriously because its finances are visible and it can close.
- Capital. A public company can raise cash from investors who can see a price and audited numbers.
- Flexible terms. Preferred shares, notes and earnouts are easier to agree on with a transparent buyer.
- Valuation. Private businesses often sell for 3 to 5 times EBITDA, while public companies with a growth story are often valued at higher multiples, so each good acquisition can add value.
What do sellers object to about taking stock?
Two things: the stock may not be easy to sell, and the buyer may not be profitable yet. The answer depends on the situation, but a profitable, growing public company finds more sellers willing to take more stock.
Do founders keep control in a public roll-up?
Usually more than in a private one. A private roll-up often needs private equity money, and founders can end up with less than half. A founder who goes public typically owns 70% to 80% after the first raise and can fund acquisitions without giving up control. See keeping control.
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