Post Acquisition Entity Track Record/Credibility From a Credit Perspective

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August 03, 2021

by a searcher in Tampa, FL, USA

Having trouble locating exact guidance from previous posts but trying to figure out implications of an Asset sale vs Stock sale as it applies to post-acquisition consideration from a third-party creditor/vendor perspective.

i.e. any situation where past performance, company history, previous financials would be taken into consideration for a credit and terms decision.

If I close my acquisition under an Asset sale (even though post-close everything looks, feels, smells the same as the previous owner/company) is that similar to running a "start-up" from a creditor's perspective, or does the past three years' company financial performance count for something?

I guess on the flip-side if I need/want the past financial performance of the company to hold weight on credit decisions within the first 12 months post-close, then should I pursue a stock sale with a 338(h)(10) election? I think this is my best option but someone cautioned me that this process/election is quite precarious based on the integrity/history of the acquired S-Corp. Kind of alarmed me.

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Reply by a searcher
from Pennsylvania State University in Atlanta, GA, USA
This is something I have been dealing with recently. The new entity purchasing the assets does not have a sufficient credit history in the eyes of most suppliers . As it relates to supplier agreements, they ultimately have been comfortable with a personal guarantee tied to each new agreement, but the credit limits they are providing are still lower than with the prior owner. That said, I felt that the risk of there being unknown liabilities tied to the old owner's entity outweighed the near-term credit situation, which is why (among other reasons) I chose asset sale.
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Reply by an intermediary
in Port St. Lucie, FL, USA
Pharus Funding Partners has a business credit builder program that can help build business credit with a cohesive strategy driven by specialized software that can track progress and get the business credit built over time.
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