Horton Business Group

     Experts at Buying and Selling Businesses

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Asset versus Stock Deal 

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When the buyer purchases the stock of the company, he or she buys the total assets and the total liabilities. This includes current liabilities and current assets. This also means the buyer gets the working capital at the time of sale.

On an asset deal the buyer buys the tangible assets and goodwill of the company. He or she does not buy any liabilities either current or long term and usually this does not include current assets such as cash and receivables. For an asset sale , the Seller must designate whether any portion of the current assets come with the business.

Therefore, the price of the business for a stock sale would be higher than for an asset sale, assuming that long term liabilities would be excluded in the sale.

 Stock Sale Price = Asset Sale Price + Current Assets – Current Liabilities + Long Term Liabilities

 Many times, buyers will make an offer for an Asset Sale and specify that a fixed amount of working capital (current assets – current liabilities) be included. This is by definition an offer that is lower than the asking price. Note that one of the reasons that Sellers do not specify working capital to be included in the price is because the working capital changes day by day depending on operational cash flow.

 Many buyers will not make an offer to buy stock for legal reasons. Their lawyers will advise them that the company they are purchasing could have an unforeseen liability and/or legal action that the buyer now assumes since she or he has purchased the stock. Many times in an asset sale, the buyer has to establish a new company and move the purchased assets into it. In this regard purchasing the stock instead of assets can be very advantageous since the registration for assets and operational licensing associated with the business is already established and would have to be re-done for a new company in an asset sale. 

Experience has shown, that in either case of stock or asset sale, the purchase contract will cover unforeseen contingencies in indemnification clauses anyway. It is typically the buyer’s attorney that drives this decision and this personal perspective in risk.