Merger Agreement Vs. Stock Purchase Agreement

An asset sale transaction involves the sale of some or all of the assets used in a business from a selling company to a buyer. Acquired assets often include all or substantially all of the company`s assets; In other cases, the transferred assets include only those used in a particular department or selected assets of the company. In an asset transaction, the buyer usually assumes only certain specified liabilities of the selling company. Summary: In the case of an asset purchase, a buyer only buys selected assets from your business, and your business will continue to exist and perhaps continue to operate after the sale. In this context, the buyer cannot assume all the responsibilities of your company that remain with your company after closing if they are not expressly assumed. When two companies are considering a merger and acquisition, an important first consideration is the legal structure that the transaction will adopt. Determining the structure of the transaction can be difficult because the buyer and the target company often have competing interests and different perspectives. The following explains some of the differences between the three most common trading structures – asset purchases, stock purchases and mergers. When buying or selling a business, owners and investors have a choice: the transaction can be a purchase and sale of assetsAssess acquisitionA acquisition of assets is the purchase of a company by buying its assets instead of its shares.

In most jurisdictions, the acquisition of assets usually involves the assumption of certain liabilities. However, since the parties can negotiate which assets will be acquired and which liabilities will be assumed, the transaction may be much more flexible or may be a purchase and sale of common shares. Acquisition of sharesIn a share purchase, individual shareholders sell their stake in the company to a buyer. In a sale of shares, the buyer assumes ownership of the assets and liabilities, including potential liabilities arising from previous shares of the corporation. The buyer of the assets or shares (the “buyer”) and the seller of the company (the “purpose”) may have various reasons to favor one type of sale over the other. This guide takes a detailed look at the decision to buy assets versus buying shares. In the case of a sale of shares, the purchase agreement does not describe the specific assets and liabilities of the company to be acquired, as the full range of the company`s assets and liabilities is transferred to the buyer with the acquired company. Therefore, the representations and warranties in a seller-buyer share purchase agreement are generally increasingly broad, covering all aspects of the acquired company and the company`s historical operations. Although a share sale requires additional sub-agreements, often less is needed than an asset sale, and generally the number of third-party approvals required to complete the transaction is much lower. The asset purchase structure is often used when the buyer wants to acquire a single department or business unit within a company.

However, this can be complex and time-consuming, as additional effort is required to identify and transfer each important asset. While some assets, such as equipment . B, can easily be transferred through a purchase contract or other ownership instrument, other assets, such as intellectual property or real estate, require a separate assignment or deed with different mechanisms and formalities. Some assets, including many permits, are not transferable at all. Mergers occur when two companies – the target company and the buyer – come together to form a single entity. The owners or shareholders of the target company are paid for the transaction in shares, cash or a mixture of both. A share sale is often preferred by the owners of a selling company because, in general, all known and unknown liabilities of the company are transferred to the buyer and sellers therefore avoid continuous exposure to these liabilities (unless expressly agreed with the buyer). Buyers often object to a share sale transaction, unless the company to be acquired has a blank operating history or there are significant practical difficulties in completing an asset sale, such as.

B restrictions on the transfer of certain assets from the selling company to the buyer or onerous third-party consents required for the transfer of assets. When two companies agree to the merger, a document called a “merger agreement” or “merger plan” is usually created. This plan will tell the shareholders of each company what they will receive after the merger. Of course, the shareholders of the defunct company will have to exchange their shares for something else like money or shares of the surviving company because their company will no longer exist after the merger. Here are some of the benefits of buying shares: Since the target company simply changes ownership, the assets of the target company remain unchanged when buying shares, and most third-party assignment and consent procedures, which can lead to complications or delays in the purchase of assets, can be avoided. However, a share purchase involves a “change of control,” so the buyer must identify contracts that require approval. For example, many real estate leases include “change of control” provisions that require the landlord`s consent. One consideration for the buyer is that he will not get 100% control unless all shareholders agree to sell their shares. A high number of shareholders increases the risk of deadlock, lengthy negotiations and other complications.

A buyer who is not able to acquire 100% of the shares will end up with minority shareholders who could prove difficult. To combat this risk, a buyer can tie the transaction to a 100% stake of the shareholders or at least a 90% stake and conduct a legal “abridged merger”,” a state legal mechanism that allows a buyer to acquire the remaining minority stake quickly and without a shareholder vote. Here are some advantages of an asset purchase transaction: Although they look similar, “stocks” vs. “Asset” purchase agreements are very different in nature and have a significant impact on management, directors and investors. At Locust Walk, we work with countless small individual product companies looking for help with the “transaction”. For them, a transaction means one of the following: the key question for sellers in terms of structure is how to sufficiently satisfy the shareholders of the selling company who review after-tax returns, while convincing the buyer to accept everything that comes with the purchase of a full operating business (for example. B all assets and liabilities). Choosing the form of an acquisition transaction can have tax and other significant consequences for buyers and sellers.

Both parties should review and consider the benefits and consequences of each type of transaction with the assistance of professional financial advisors to determine whether an asset or stock purchase is best suited to their wants and needs. At Locust Walk, we have a team of dedicated specialists who have experience in managing licensing, APA and SPA and merger transactions and, as a registered broker-dealer, have the infrastructure and expertise to help companies of all sizes pursue the path that offers the greatest value. Do not hesitate to contact me at chris@locustwalk.com for a consultation. With any M&A transaction, one of the first questions for the parties to the transaction is how the transaction should be structured. Whether the buyer can acquire the assets or shares (or other interests) of the target company affects virtually every aspect of the business. Sometimes the choice of the optimal structure is obvious and quickly agreed; In other cases, the parties may devote considerable time and resources to agreeing on this threshold provision. When it is time to draft the final purchase agreement, there will be significant differences in the agreement, depending on the type of transaction structure agreed between the buyer and seller. In the case of a share acquisition, the buyer acquires the shares of the target company from its shareholders. .

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