Asset Sales v. Stock Sales
Before you buy or sell a business, you will need to determine what, exactly, is for sale. Not only will you need to decide what the business is worth based on its current and future success, but you will also have to choose between the shares and assets of the company.
When a buyer purchases the shares of a company, the company’s original shareholders yield their shares in the company to the buyer. When a buyer purchases the assets of a company, the company sells bits of the company (assets and liabilities) to the buyer.
Think of a share sale as acquiring a company “warts and all” and a business sale as “cherry-picking” which assets, liabilities, and obligations are valuable and for sale.
Both options have pros and cons, and the type of transaction you choose will ultimately depend on your goals when buying or selling a business. In any case, the buyer and seller will have to work hard to market, negotiate, and close the deal.
Find out how to achieve your goals with our firm.
What Is Due Diligence?
In any big purchase you make, doing your due diligence is important. Another way to think about doing due diligence is as doing your homework or researching. The term “due diligence” refers to the investigation and caution businesses and businesspeople take before entering into a contract or agreement with another party.
During a business acquisition, you will want to consider:
- Market comparison
- Business growth
- Historical performance
- Intellectual property (IP)
- Proprietary technology
- Valuations and appraisals
- Strengths and weaknesses of the company
- The type and number of potential buyers
- Insurance policies and other contracts
- Third parties that may be involved
- And more
If you are buying a business, your lawyers will request in-depth information from the seller. If you are selling a business, you should hire an attorney to help compile this information. Presenting businesses correctly is the key to protecting both buyers’ and sellers’ best interests.
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How Long Will the Transaction Take?
According to Forbes, most sales and acquisitions take 4 to 6 months to complete. Like many other parts of the process, the length of the transaction will depend on both the buyer and the seller. If the buyer wants to purchase the company quickly because of multiple bidders or any other reason, the process might move faster, but if the buyer wants to take time with their decision, the opposite will be true.
Transactions may also be more complex if the seller wants to conduct a partial sale and stay involved with the company or if the buyer wants to pick and choose which assets and liabilities to purchase.
No matter your goals, a good legal team can make your transaction more efficient and less stressful.
Poydasheff & Sowers, LLC provides personalized solutions for each buyer and seller we help. We are dedicated to great results and committed to each and every client.
Find out why we are respected among our clients and peers alike — call us at (706) 705-5777 or contact us online to schedule your consultation today.
Commonly Asked Questions
How important is due diligence in the mergers and acquisitions process?
Due diligence is a critical step in the mergers and acquisitions process, as it involves thorough research and investigation before finalizing a deal. This process helps buyers assess the value of the business, understand its financial health, and identify any potential risks or liabilities. Key areas of focus during due diligence include market comparisons, historical performance, intellectual property, and existing contracts.
Why should I hire a legal team for my mergers and acquisitions transaction?
Hiring a legal team is essential for ensuring a smooth and efficient process. A knowledgeable legal team can provide valuable guidance throughout the transaction, helping you navigate complex legal requirements, conduct thorough due diligence, and negotiate favorable terms. They can also assist in drafting and reviewing contracts, ensuring that your interests are protected. With their support, you can minimize risks, avoid potential pitfalls, and focus on achieving your business goals.
What should I consider when preparing to sell my business?
When preparing to sell your business, several key factors should be taken into account to maximize its value and ensure a successful transaction. First, it's important to conduct a thorough valuation to understand your business's worth in the current market. Additionally, organizing financial records, legal documents, and operational information will facilitate the due diligence process for potential buyers. Consider the timing of the sale, as market conditions can impact buyer interest. Lastly, enlisting the help of a legal team can provide you with the necessary support to navigate the complexities of the sale.
