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Chapter 15. Conducting the M&A Transaction > Sale and Acquisition of Assets

Sale and Acquisition of Assets

An alternative method available to acquirers who are interested mainly in the assets of a company (as opposed to full control of the company), is purchasing all or part of the company's assets. A transaction in which all of a company's assets are purchased is similar to a merger in that the parties in both types of transactions are the companies themselves, rather than the shareholders, and the terms are agreed upon in negotiations between the managements of the companies. There are certain main differences with mergers, which are summarized below:

  • Preservation of legal entity— As opposed to mergers, when a company sells all of its assets to an acquirer, its legal existence is not prejudiced. After selling its assets, the selling company may choose whether to keep going or dissolve voluntarily, as is usually the case.

  • Selective transfer of assets— In the case of asset acquisition, only the assets and liabilities which are explicitly included in the contract underlying the transaction are transferred to the acquirer. Unlike a merger, the acquirer does not step into the seller's legal shoes in its relations with third parties.

  • The proceeds remain in the company— Asset purchases operate to transfer the ownership of the seller's assets, whereas a merger transfers ownership of its shares. In mergers, the consideration is paid directly to the shareholders; in asset purchases, the consideration is paid to the selling company, which may dissolve and pass the consideration on to the shareholders.

  • Inapplicability of the securities law— Securities laws do not apply to an asset purchase transaction directly, whereas a merger transaction may be subject to such statutory regulation.

  • No direct effect on management— Since an asset purchase does not include a transfer of the ownership of the company's shares, the transaction has no bearing on the control of the selling company and therefore, as opposed to mergers, has no direct effect on the status of the seller's managers. In practice, however, if the company is voided of all its main assets, the existing management loses its raison d'être.



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