There are many terms and definitions used when it comes to mergers and acquisitions transactions. Today we´re bringing you a short article explaining briefly what an asset deal is.
How can we define it?
When a buyer prefers to acquire a company’s functioning assets over its stock, this is known as an asset deal. It’s a form of merger and acquisition deal. In these situations, the buyer completes the deal by paying the selling business for some or all of their assets. An asset deal, in legal terms, is any transfer of a business that does not take the form of a stock purchase. This indicates that the majority of business transfers are either share/stock acquisitions or asset transfers.
APA (Asset Purchase Agreement)
What is an APA? To complete an asset deal transaction an asset purchase agreement is used. This simply outlines what assets will be purchased. An APA also includes many specific details such as the total consideration, timing, payment structure representations, other standard legal terms, and warranties.
Asset vs Equity Deals
There are two major approaches to purchasing a company. Purchasing equity from selling shareholders is a simple strategy. This type of structure allows the buyers to indirectly own all of the company’s assets while also taking on all of its liabilities.
You may be interested in: what is private equity and how does it work?
On the other hand, buyers purchase the underlying assets and liabilities in asset deals. What is the point of liabilities? When they buy inventory, for example, they are also purchasing supplier connections. As a result, the purchasers will be responsible for the accounts payable. Such transactions do not involve the shareholders directly.
What are the benefits of an asset purchase deal?
An asset deal may offer several advantages over a stock transaction, especially for the buyer. It allows the buyer to select which assets he wishes to purchase and which he does not. It also permits the buyer to avoid taking on any liabilities that he or she does not want to. This would not be the case when the seller’s assets and liabilities are included in the stock acquisition. Furthermore, asset transfers may be arranged in such a way as to provide a tax benefit. This would not be the case in a stock purchase when the seller’s assets and liabilities are included in the sale. In addition, asset transactions might be structured to give a tax benefit.
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