With an asset sale structure, Buyers:
- Can “step up” the basis over the current valuations of assets and get tax deductions in future years for depreciation and/or amortization of those assets;
- Can amortize goodwill – the excess of what is paid over the value of tangible assets – on a straight-line basis over 15 years (versus a stock purchase where goodwill cannot be deducted until the stock is later sold by the Buyer);
- Can attempt to “cherry pick” the liabilities and assets it will assume in the transaction;
- Can spend less time on due diligence because it is not exposing itself to unknown liabilities; and
- Can select which employees it wants to retain and which it does not want to retain.
The downsides of an asset sale for a Buyer include:
- Key business contracts will likely need to be re-executed and possibly renegotiated;
- Assets may need to be retitled; and
- Employment agreements with employees may need to be renegotiated.
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David Traversi, Partner, Newport (david.traversi@newportllc.com)