In a share deal you sell the shares, and with them the whole company including its history and its risks. In an asset deal you sell selected assets and the company stays with you, together with whatever the buyer did not want. Sellers almost always prefer a share deal, buyers an asset deal, and it is one of the first points of contention in negotiation.
What the difference is
In a share deal the subject of the transaction is the shares. The owner changes, the company stays the same: same registration, same customer contracts, same permits, same team. The whole past comes with it, including tax risk and any disputes.
In an asset deal the buyer chooses: machines, stock, the trade mark and some contracts, leaving behind what they do not want. The company stays with you, along with the obligations the buyer did not take on.
Why sellers prefer a share deal
- A clean exit. You are not left with a company to wind up or obligations to service.
- Taxed once. A sale of shares by an individual is taxed once. In an asset deal the gain arises in the company and is taxed again on distribution to shareholders.
- Contract continuity. No need to renegotiate customer and supplier contracts, provided they contain no change of control clause.
Why buyers prefer an asset deal
- Cutting off the past. They do not inherit tax risk or pre-deal disputes.
- Depreciation. Acquired assets can be depreciated from a new value, which lowers tax in the following years.
- Choice. They take only what they need.
What this means for the price
Deal structure is part of the price, although it is rarely discussed that way. If a buyer insists on an asset deal, your after-tax result can be lower by a double-digit percentage at the same headline number. When comparing offers, the figure to compare is what reaches you net, not the headline.
It works the other way too. If the company carries unresolved risk, the buyer will either insist on an asset deal or keep heavy protection in a share deal: escrow, extensive representations and warranties, or an earn-out. Clearing those risks before the process is the simplest way to make the structure conversation go your way.
When an asset deal makes sense for a seller too
When you are selling one business line and keeping the rest. When the company has a history that cannot be tidied up quickly and you want to close within a sensible timeframe. Or when the property is staying outside the transaction and has to be carved out anyway.
See also
- SPA, representations and warranties and escrow in the glossary
- Red flags, the risks that decide which structure a buyer will accept
- Frequently asked questions about selling a company
About the author
Łukasz Brzyski runs Brzyski & Partners Management Consulting. He advises on the sale and purchase of companies valued between PLN 10 and 50 million, and sold two companies he co-founded before he started advising others. More about the author