M&A Asset Sales vs. Stock Sales: Pros and Cons of Each Structure, Buyer and Seller Preferences, Negotiation Strategies

Description

The structure of an M&A transaction impacts every aspect of the deal, including how ownership, assets, and liabilities are transferred from the target business to a buyer. Asset and stock (sometimes called equity) sales are the most common and straightforward types of acquisitions.

In an asset sale, the buyer can pick and choose what assets they want to buy, which provides an opportunity for reducing the buyer's risk of assuming unknown liabilities. Assets that are typically included in an asset sale are tangible and intangible assets, such as equipment, machinery, real estate, customer contracts, or intellectual property. The buyer in an asset sale may also agree to assume certain liabilities of the seller like bank loans or debts that the seller took out to finance the purchase of certain assets.

In a stock sale, the buyer acquires stock (or equity) from the target company's stockholders. A stock purchase is often an easier type of transaction to execute because very little about the company changes as the buyer takes the assets and liabilities of the target. Stock sales are often preferred by sellers because generally all known and unknown liabilities of the business are transferred to the buyer, allowing the seller to avoid ongoing exposure to such liabilities (other than as expressly agreed with the buyer).

Each acquisition structure provides distinct advantages and disadvantages for buyers and sellers. When considering how to structure an M&A transaction the parties must carefully evaluate the legal, accounting, and tax implications of the deal. Buyers will typically prefer an asset sale, whereas sellers will usually prefer a stock sale.

Listen as our authoritative panel explores the differences between asset sales and stock sales in M&A transactions and reviews key considerations when determining the right structure for a deal.