I am nearing a deal to acquire my target via asset purchase and I believe there are some challenges in doing it this way
1) Supplier credit. As you are forming a NewCo, suppliers might not extend the same payment terms to the new business as they did to the seller OldCo. If you have to pay earlier to your vendors, it will impact cashflow and WC
2) Customer contracts. Many customers will have contracts with OldCo. These contacts will require permission from the client before they are re-assigned to the NewCo. Reassigning contracts might trigger the customer to re-negotiate terms
3) It is a constantly moving target, where both parties do not know the final price until close to the completion day. This is because the debtor book and inventory will fluctuate day to day. If there is a sudden increase in A/R, there is a risk of underfunding the deal.
Did anyone experience similar challenges in your acquisition journey? Would you consider the above real issues, or non -issues? If the former, what creative solutions did you come up with to address them (& any others you can think of?)
Challenges with asset purchase type acquisitions
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