How do you treat inventory in an asset purchase?

May 15, 2025

by a lender in Falmouth, MA, USA

Too many buyers agree to pay for inventory in addition to the purchase price without ever inspecting it. Then closing hits, and they realize what they actually bought: inventory that’s obsolete, missing, or simply unsellable. If you're paying for inventory, structure it as consignment. The seller gets paid over time, as the inventory moves. You protect yourself from taking ownership of dead assets and ensure you're only paying for what proves valuable. Smart deals come from verification, not assumptions. If you're assessing a transaction with inventory and want to make sure it's structured right, feel free to reach out.

1 Like

14 Replies

147 Views

Replies

Reply by an investor
from University of Puget Sound in Seattle, WA, USA

I like the consignment idea, but I wonder if anyone has actually ever closed a deal using that structure. I feel like this would be a huge turnoff for sellers. I've closed 3 acquisitions involving significant inventory (each had 3000+ physical SKUs). My personal inventory struggles from my deals: Deal #1: NWC done separately and we went through everything to get rid of that which was obselete-->fortunately, very transparent seller, but it took a ton of both of our time on the day of closing when there was a lot of other stuff going on. Deal #2: Inventory approximated on their book value after adjusting out dead inventory--> they pushed back purchases, which affected sales post-close. Deal #3: Inventory included in purchase price (since the inventory in their books was acknowledged to be completely off) with a floor on how much lower they could get in their books-->this led them to liquidate active inventory down to the floor point and left the slow moving inventory. Almost to the point of me going after them for doing so, but it wasn't quite worth the effort of a legal battle at the time. We got this deal for 20% less than their competing offer, who was paying 100% in cash but required the inventory to be separately valued.

Reply by a professional
in New York, NY, USA

^redacted‌ depending on the industry. A lot of inventory becomes obsolete and is never written off. Here are three problems with not writing off obsolete inventory. 1. Inventory is overvalued. 2. the profit and loss is presenting higher than it should be, so you're probably overpaying. 3. You have to get rid of the bad inventory and had to pay for that.

+12 more replies.

Join the discussion