Acquisitions of businesses can be structured as an asset or stock transaction. When buying or selling a business, the owners and investors have a choice: the transaction can be a purchase and sale of assets or a purchase and sale of common stock. The buyer of assets or stock (the “Acquirer”) and the seller (the “Target”) may prefer one type of sale over the other for a variety of reasons. This article delves into the asset vs stock purchase decisions in a merger and acquisition deal.
During an asset sale, the seller remains the legal owner of the business while the buyer purchases individual assets of the company, such as equipment, licenses, goodwill, customer lists, and inventory.
Asset sales do not include purchasing the target’s cash, and the seller typically retains its long-term debt obligations, such a sale is characterized as cash-free and debt-free.
A stock purchase is simpler in concept because its transaction is less complex than an asset purchase. The Acquirer buys the stock of the target and as it finds it, including its assets, liabilities and contracts such as leases and permits.
During mergers and acquisitions, buyers and sellers must consider a variety of options before deciding on a asset purchase or stock purchase. The next article will examine these in detail.