Asset purchase of a business with existing contracts in place

by a searcher from Georgetown University

1 year ago

Has anyone completed an asset purchase of a business with existing contracts in place without compromising those contracts?

An example of this would be the purchase of a construction company that has a sales pipeline of signed contracts that are between the existing corporate structure and the customer. Since an asset sale would mean the creation of a new entity, those existing contracts between the existing entity would not be enforceable by the new owner since the new owner didn't acquire the equity of the existing company.

I'm looking for creative ways to effectively have my cake and eat it too. Has anyone done this before? I'm game for open conversation, hypothetical or otherwise.

Thanks everyone!

1 like
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13 comments

searcher from University of Queensland

Have only seen buyers undertake a shares sale with this, rather than just an asset sale. Obviously they decided the risk of losing the significant work contracts over-shadowed any legal liabilities hidden in the target. But a discount is usually applied

2 months ago | like reply | 0 likes

investor from The University of Chicago - Booth School of Business

Make sure you understand both the i.) bonding requirements and ii.) the target's experience with retention (what it has taken to collect / liens filed, etc.). Bonding requirements should be treated like debt with an offset to the purchase price. Unless there is some unusual connection with the customers or skill set that will not remain with the business post-closing, you can structure around / eliminate the risk of contract loss.

1 year ago | like reply | 1 like

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