Buy Assets, Not Companies

By Tom Taulli

There are a myriad of ways to structure an M&A transaction. You can simply buy the stock of another company or you can do a stock-swap (and perhaps, as a result, make the transaction tax-free). Or, you can buy the assets of the seller ñ a transaction that is known as an ìasset sale.î

Why an asset sale? For the buyer, there are several key advantages. First, the buyer typically does not assume the liabilities of the seller. Next, the buyer can step-up the basis of the assets purchased and then depreciate the assets, gaining a nice tax advantage. Also, the buyer can cherry pick certain assets.

Of course, there are disadvantages. If there are a lot of assets, it can be an administrative headache to draw-up the purchase agreement because each asset needs to be listed. Moreover, some assets may prove difficult to assign, such as a lease or distribution agreement.

But, in the tough economic environment, an asset sale can make a lot of sense. And, it should be no surprise that we are seeing more and more of these transactions.

Case in Point

Look at the private equity firm GTCR. Originally, it was prepared to spend $50 million to purchase the defunct software developer, Divine Inc. Now, it looks like GTCR is going to do an asset sale transaction. After going through some due diligence, GTCR is mostly interested in select software assets.

One of the alluring assets is Divineís content management software tools. This was the result of the October 2001 purchase of Open Market for $59.3 million. Apparently, the customer base is quite loyal.

So, while a buyer may, at first, have the intent of the company, the due diligence phase can change things significantly. There may only be a few assets worth buying -- the rest are probably worthless, anyway.

MergerPlace is pleased to have the esteemed Mr. Tom Taulli as the managing editor of our MergerPlace M & A Advisor™ E-zine.

Tom Taulli is an expert in the M&A process. He is the author of the critically acclaimed The Complete M&A Handbook (Random House) as well as six other books written for publishers such as Bloomberg and McGraw-Hill. Tom also teaches M&A at the USC School of Business.

Tom has been quoted extensively in the press, including the Wall Street Journal, USA Today, Barron's, and The Los Angeles Times, and has provided commentary on CNBC, CNN, and Bloomberg TV, as well as appeared on a variety of top radio stations across the country.

Tom's books are available for purchase in our bookstore.

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