What is an Asset Deal?

During mergers and acquisitions (M&As), buyers may choose to purchase a company’s underlying assets instead of its stock shares. These transactions are called asset deals.

How do asset deals help buyers?

Buyers can benefit from asset deals in several ways. First, buyers in an asset deal can avoid many of a seller’s liabilities. Buyers can pick which assets it wants and which it doesn’t. Tax benefits, efficient due diligence processes, and the ability to cherry-pick desired employees are other potential benefits that buyers can take advantage of.

What are some drawbacks of asset deals?

A major drawback of asset deals is the requirement for consent from every contract partner.

Asset deals typically have a longer negotiation process because of this as well as the asset selection process. Sellers have a higher tax burden, so they will often raise the deal’s price to cover it. Additionally, legal contracts can be complicated because each asset must be clearly identified.

What is an asset purchase agreement?

An asset purchase agreement (APA) refers to the contract that buyers and sellers use during an asset deal. It is meant to clearly state the terms of the deal and which assets will be involved.

The agreement has pricing information, and it must include factors like financing, loans, and debt, if applicable. It must also include factors like legal status, warranties, and asset quality.

Before an APA is closed, the purchase price must be delivered, a third party must approve the sale, and the seller must review it and make any desired adjustments.

Common causes of APA adjustments include asset depreciation, balance sheet discrepancies, amortization, or interest changes.

What types of assets are usually purchased?

Both tangible and intangible assets are purchased during an asset deal. Common tangible assets purchased include:

  • Machinery
  • Vehicles
  • Equipment
  • Inventory
  • Land

Buyers also purchase intangible assets such as:

  • Copyrights
  • Franchises
  • Goodwill
  • Trademarks
  • Patent
  • Software
  • Licensing agreements
  • Domain names
  • Permits
  • Records

What’s the difference between asset deals and stock deals?

Now that you’re familiar with asset deals, it’s important to understand how they’re different from stock deals.

Stock deals occur when a buyer purchases the ownership shares of a company instead of its assets. It is a more straightforward procedure because there is no asset selection involved. During a stock deal, the buyer receives all assets and liabilities from the seller.

Stock deals require less complicated legal contracts because they are cleaner transactions. Unlike asset deals, stock deals only require partner consent if the contract contains a change-of-ownership clause. However, buyers do not receive the same tax benefits from a stock deal as in an asset deal. Buyers also typically take on more risk in a stock deal.

Asset deals are those in which the buyer purchases select underlying assets from a company. It is different from a stock deal, a transaction in which ownership shares are purchased.

Benefits of asset deals include tax benefits for buyers, asset cherry-picking, and liability dodging. Some disadvantages include complicated contracts, consent of all contract partners, and prolonged negotiation.

An asset purchase agreement is a contract used by buyers and sellers during an asset deal. Common purchases include tangible assets, such as land and equipment, or intangible assets such as patents and trademarks.