Asset vs stock sale for 1-2M deal size

September 28, 2020

by a searcher from Columbia University - Columbia Business School in Princeton, NJ, USA

Hi All, I have a few deals in the 1-2M range and all with BS that show AR netting out AP and nill debt. Having said that, is there a preference on one or the other?

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Reply by a searcher
from University of California, Berkeley in Vienna, VA 22180, USA

I agree with David and Rick. I can however give you a few examples of where a stock purchase makes more sense from my experience. A construction company that has been in business for 30+ years. A trucking company with 60+ trucks and other equipment. If you were to go the asset sale route you would be starting over as a new contractor and have much less credibility than the one with 30+ years. For the trucking company, switching the registration and licenses over would be costly and time consuming. Ask yourself what do you have to gain from doing the stock sale. If it's not substantial go with the asset approach.

Reply by an intermediary
from The University of Chicago in Chicago, IL, USA

A/R and A/P should have no impact on Asset vs. Stock. Neither should size. You do stock purchase under following conditions A) you want to protect IP assets, contracts, licenses, leases, regulatory approvals, etc.,, or B) to help seller save taxes. If A is not an issue, then you want to do Asset deal unless B is an issue. If B is important in the deal, then you do a Stock purchase but increase comfort through deeper due diligence, and increase protection through tigheter Reps and warranties, and indemnifications.

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