A share deal may be the best option for acquiring a business if the intention is to acquire the business as a whole as opposed to simply individual assets, as is the case with an asset deal.
Experts are expecting the number of M&A transactions to rise again, particularly in the second half of 2023. When it comes to acquiring businesses, there are two options: a share deal or an asset deal. Which is the better option in a given case is something that ought to be carefully considered, advises MTR Legal Rechtsanwälte, a law firm that counsels both domestic and international clients on all aspects of mergers and acquisitions.
Whereas in the case of an asset deal only individual assets belonging to the business are acquired, a share deal entails taking over the business in its entirety through the acquisition of the company’s shares. The company remains, for all intents and purposes, unaffected, with all of the assets, liabilities, and contractual relationships being carried over. The advantage of this arrangement is that the terms are clear and, unlike in the case of an asset deal, the details regarding which assets are to be transferred to the buyer do not need to be hashed out in detail. It is for this reason that there are often fewer bumps in the road when it comes to securing share deals.
That being said, they do entail the assumption of all the company’s existing liabilities and commitments. The risks these present ought to be carefully evaluated beforehand in order to rule out the possibility of any unpleasant surprises or liability risks post-acquisition. And yet it is sometimes the case that not all of the risks present are identified prior to the transaction going ahead. If the business finds itself in dire economic straits, an asset deal may be the more attractive option.
This is because an asset deal only involves the acquisition of individual assets. The buyer decides which parts they wish to acquire, thus substantially reducing the risks associated with the acquisition. On the other hand, each asset that is to be acquired must be identified individually and then transferred in compliance with the relevant regulations. All of this entails considerable extra effort. Moreover, if an asset is “overlooked” in the purchase agreement, it remains with the seller.
It is also important to consider the different tax implications that a share deal and an asset deal can have.
MTR Legal’s team of experienced attorneys can advise clients on M&A transactions.