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Deal Pricing - Asset vs. Stock Sale


Usually, sellers want to sell stock (or LLC interests) and buyers want to buy assets. During the negotiations for a highly sought after selling company, the investment bank should distinguish what the seller prefers – stock or asset purchase. If the preference is stock and the key buyer prospects want an asset sale, these buyers should expect to pay more for an asset purchase.

The advantages of an asset sale to the buyer follow:

  1. Specific Asset Targeting – the buyer can pick and choose specific assets, such as customer contracts, IP, real estate, etc. A problem may arise if some contracts are difficult to assume, such as government and key supplier agreements. If the buyer excludes unwanted assets and liabilities, it may greatly enhance the deal, resulting in a higher price.
  2. Large Cash Account – In the stock purchase, the seller may not get to keep all the cash. Often, the excess cash not need for working capital can be taken by the seller. For an asset sale the terms are usually debt free, cash free.
  3. Liability Mitigation – In a stock sale, the buyer typically acquires the entire company, including its liabilities. In contrast, in an asset sale, the buyer can often negotiate to exclude certain liabilities or allocate them to the seller, reducing their risk. This can make the transaction more attractive to buyers, leading to a potentially higher price for the assets.
  4. Tax Benefits – Asset sales can sometimes be more tax-efficient for both the buyer and the seller. Buyers can benefit from higher tax basis in the acquired assets, which can lead to higher depreciation and amortization expenses. As part of a stock sale, sellers may also benefit from capital gains treatment, depending on their specific situation.
  5. Avoiding Contingent Liabilities – Stock sales may involve hidden or contingent liabilities that can be challenging to uncover during due diligence. In asset sales, buyers can often conduct a more thorough examination of the specific assets and associated liabilities, reducing the likelihood of unpleasant surprises after the transaction closes.
  6. Competitive Bidding – Asset sales can attract a wider range of potential buyers because they allow for a more straightforward transaction. As a result, competitive bidding can drive up the price for the assets.
  7. Strategic Buyers – Companies looking for specific assets to complement their existing operations may be more wiling to pay a premium for those assets in an asset sale.

It’s important to note that the decision to structure a deal as an asset sale or a stock sale depends on the specific circumstances of the parties involved, their objectives, and the nature of the business. The relative advantages and disadvantages of asset and stock sales can vary widely from one transaction to another, and sellers often seek professional advice to determine the best approach to their situation.