Asset purchase or Share Purchase?

by a searcher from Baruch College-The City University of New York - The Zicklin School of Business

1 year ago

I know the general risks of both and why a buyer/seller would want one over the other but as a buyer, is there anything that would stand out in a business that would convince you that a share purchase if the better way to go? Currently working on a transaction sub $500k and it seems pretty straightforward. General DD of financials has already been completed and things check out.

Thanks in advance of your opinion!

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professional from University of Minnesota - Twin Cities Campus

Remember: a stock deal does not NECESSARILY mean the contracts/licenses remain in place. You have to look at whether there are change-of-control provisions or other mechanisms that might complicate the process. Leases and contracts with bigger entities (likes banks and government bodies) often contain these types of provisions that largely nullify the administrative benefits of a stock deal. You have to run the legal diligence to know for sure.

Also just to be clear you can't buy a company's stock and just take over payment of its EIDL loan without the SBA's consent. Lots of people seem to be under the impression that a stock deal solves that problem - it doesn't.

3 months ago | like reply | 0 likes

professional from Texas Tech University

I had one situation where the business was registered as a foreign entity, due to staffing, in 47 states. Then multiple contracts with large companies and government contracts made this decision even easier.
Rather than the time involved for contracts, and those hoops, and reregistering in all of those states, a share purchase was the way to go.

These days, I also look at partial acquisitions, or equity positions, so there is that too.

1 year ago | like reply | 1 like

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