#3265 - Asset Sale Vs Share Sale Crib Sheet - Mergers and Acquisitions (Private Acquisitions)

Asset Sale Vs Share Sale

1. Advantages of buying a business by Asset Sale

   1. Due diligence

      1. Limited to assets being acquired

      2. Likely to be less disruption to the continued trading of the seller during the acquisition process

      3. Less costly

   2. Ability to choose assets to acquire

      1. Buyer can “cherry pick” the assets it is willing to acquire and the liabilities it is willing to assume

         1. GIVE EXAMPLE OF LIABILITY BUYER UNLIKELY TO WANT

   3. Stamp Duty

      1. Only payable on land

   4. Integration

      1. Might enable buyer to achieve synergy more readily than buying a standalone company on a share purchase

         1. Instructions would need to be taken from the buyer as to its plans for integration post purchase

2. Disadvantages of buying a business by Asset Sale

   1. Need to transfer individual assets

      1. There will need to be individual transfers of the lease/supply contracts

   2. Trade continuity

      1. Work may be required to rebuild confidence

   3. VAT

      1. Payable on assets transferred unless TOGC (transfer of a going concern)

         1. Assets must be used by the buyer in the same kind of business as that carried on by the seller

         2. There can be no significant break

         3. Buyer must be a taxable person, or become a taxable person as a result of the transfer

3. Advantages of selling a business by Asset Sale

   1. Employees

      1. TUPE 2006 protects an employee on an asset sale

         1. The rights and obligations of the employees working in the identifiable economic entity will automatically be transferred to the buyer

   2. Cherry Pick

      1. Seller can choose with assets to sell and liabilities to transfer

4. Disadvantages of selling a business by Asset Sale

   1. Ability to choose assets to acquire

      1. Seller does not necessarily get a “clean break” from the business

   2. Need to transfer individual assets

      1. Seller will need third party consent to assignment, or novation, or to negotiate fresh contracts

         1. Could be time consuming and require additional cost

   3. Tax

      1. Potential liability of gains arising on any assets transferred

      2. May suffer double taxation

         1. Depends on whether the sale proceeds are extracted from target by way of a voluntary winding up (potential chargeable gain as the winding up is considered a disposal of the shares) or by way of a dividend (companies do not pay corporate tax on dividends received from their subsidiaries

5. Advantages of buying a business by Share Sale

   1. Trade continuity & no need to transfer individual assets

      1. Contracts remain with target, and therefore pass automatically

      2. Corporate Name & Goodwill remain with target & therefore transfer automatically

      3. Statutory books automatically transferred

      4. No direct effect on employment contracts

6. Disadvantages of buying a business by Share Sale

   1. Due diligence

      1. Acquire all actual and hidden liabilities of target, therefore undertake a far more rigorous due diligence process and seek wider protections in the SPA

         1. Costly & time consuming

      2. Negotiate warranties and indemnities to ensure protected against liability

   2. Change of control clauses

      1. Beware of these

   3. Stamp Duty

      1. Payable at 0.5% if consideration over 1000 (rounded up to nearest 5)

   4. Employees

      1. Buyer will be affected by any liabilities and obligations of the target company which arise in the future

7. Advantages of selling a business by Share Sale

   1. Clean Break

      1. All liabilities of the business remain in the company being acquired and pass, ultimately, to the purchaser as the new owner

   2. Tax

      1. Potential use of substantial shareholder exemption to seller company and no corporate tax payable by...