Perhaps the most common form of merger and acquisition is the asset purchase transaction. In this type of transaction, the buyer identifies the specific assets of the target company that it wishes to purchase and carves out those assets from the target’s portfolio of assets. Frequently, any liabilities associated with the purchased assets are assumed by the buyer. By purchasing assets, the buyer can purchase only those assets it desires to acquire and agree to assume only those specified liabilities of the target company. As a result, the buyer can avoid the expense of purchasing unwanted assets and reduce the risk of assuming most unknown liabilities.
These transactions can be extremely labor intensive because each desired asset must be specifically identified and evaluated. Several problems may be encountered in an asset purchase transaction.
- The buyer must accurately identify and agree on the assets it wants to acquire and those its wants to remain with the target.
- The buyer must identify and agree on the liabilities it will assume and those that will remain with the target.
- The buyer must conduct due diligence to determine who owns particular assets and whether those assets are in any way encumbered.
- The buyer and target company must analyze the possibility the transaction may generate taxes on either party upon consummation of the sale.
- The buyer and its accountant must analyze the ability to recapture tax credits and depreciation associated with particular assets.
- The buyer must evaluate the need to comply with California’s bulk sales laws.
- Well in advance of the closing the buyer must analyze the possible non-transferability of certain licenses, franchises or permits, and how critical those are to the success of the transaction.
- The parties must be sure to document properly the transfer of certain assets, such as real property, motor vehicles, vessels, and intellectual property.
- The buyer must examine each of the target’s important contracts and, if required, obtain third party consents before transferring or assigning the contracts.
Next week I will discuss the advantages of asset purchase transactions. Finkel Law Group has extensive experience representing buyers and target companies in asset purchase transactions in a number of different industries, including software, toys, resorts, agriculture, and automobiles. If you’re contemplating the purchase or sale of your business, contact us to discuss your transaction. You can reach us at (415) 252-9600, or info@finkellawgroup.com.