A stock swap differs from a cash transaction in mergers and acquisitions mainly in how the acquiring company pays for the target company. In a stock swap, the buyer offers its own shares as payment instead of cash. Shareholders of the target company receive shares in the acquiring company based on a pre-determined exchange ratio. This allows both sides to share ownership in the new combined entity. In contrast, a cash transaction involves the acquiring company paying the target’s shareholders a fixed cash amount for their shares, ending their ownership entirely.

Stock swaps are often used when the acquiring company wants to conserve cash or believes its stock value will grow, giving target shareholders potential long-term gains. They also align interests, as both sets of shareholders benefit from future success. However, they can dilute existing shareholders and depend on market confidence in the acquirer’s stock.

Cash transactions, on the other hand, offer simplicity and certainty. Target shareholders receive an immediate, fixed value, unaffected by market fluctuations. But for the buyer, large cash deals can strain liquidity or increase debt levels.

In summary, a stock swap emphasises shared growth and long-term partnership, while a cash transaction provides instant value and closure. The choice between the two depends on financial strategy, market conditions, and the goals of both companies involved.