We are often asked what makes a deal successful? We decided to share our thoughts and experiences to help buyers and sellers have a more successful deal making process.
This blog is for informational purposes only. This blog is not legal advice, and no attorney – client relationship is intended or formed by this blog. For more information or to contact an attorney at Foreman Law, please email info@goforemanlaw.com.
Is an Asset Deal a good structure for your deal?
What is an Asset Deal? A deal in which the buyer purchases assets from the Seller. In an asset deal, the buyer often assumes some of the liabilities and contracts of the seller.
Key Considerations:
- Buyer Preference – The buyer generally prefers an asset deal because of tax treatment and flexibility they get to pick assets and exclude liabilities. The buyer gets a fresh start for a business. There can also be tax benefits for the buyer, especially in terms of depreciating the purchased assets.
- Assignment of Contracts – The buyer will often need to make sure the appropriate business relationships and contracts transfer as well. Sometimes, the greatest value of the business is in the contracts.
- Third Party Rights – All parties need to be aware of what third party rights and consents are involved in making the deal happen, and to plan those out early. Some transactions require consent from third parties which may make an asset deal undesirable in certain situations, particularly if a critical third party is unwilling to consent. Sophisticated third party agreements will often require consent regardless of the deal structure.
- Additional Taxes – buyers and sellers need to be aware of possible additional tax obligations on the deal, such as sales or use tax, and bulk sales taxes, among other items.
- Seller Preference for Stock Deal – Sellers generally dislike asset deals and prefer stock deals because they generally receive better tax treatment on a stock deal.
- Additional Assignments – When you increase the number of moving pieces it can increase the time and cost associated with the deal. Specifically with contracts and deeds.
- Additional Fees – There may be additional transfer or termination fees to vendors or customers. Franchise fees can be associated with the purchase as well. Ask questions early to get a full scope of fees.
Top Take Aways
- Sam — Involve your team early and get the ship headed in the right direction from the beginning.
- Jacob — Know the details if you are the seller or the buyer. Be patient and take time to figure out the best deal structure.
Wellness Tip! Be patient and breath! Some deals feel like a sprint, but overall they are a marathon.