Asset Acquisition vs Company Acquisition
Which is the best acquisition method?
Branching a business portfolio may sound like a piece of cake, but I can assure you that it takes more than just acquiring and signing contracts to know what you are getting yourselves in. Even before making payment, buyers should have a clear understanding of the nature and purpose of the purchase.
“Can this company help me boost my net worth?”
“How does the asset of this company impact my own business in any way?”
All these questions boil down to the golden question, “Should I buy the company or just its assets?”. But before we dive into analysing the benefits and decision-making process of each acquisition methods, there is a clear distinction between asset acquisition and share acquisition that should be one of, if not, the most important decision-factor in choosing which approach to head towards.
What is the difference between Asset Acquisition and Company Acquisition?
An asset acquisition involves purchasing only the individual asset of the company, which normally include its accompanying liabilities along with it. On the other hand, a company acquisition involves the transfer of ownership of the business, which normally involve the transfer of shares from the seller to the buyer. Different acquisition methods hold different level of risks that potential buyers should be wary of. As such, the most effective way to determine the most appropriate approach is to weigh the pros and cons of each acquisition, and to select the option that best align with the buyer’s long-term goal.
What are the advantages and disadvantages of Asset Purchase and Company Acquisition?
Are there any other methods to decide the best acquisition method for you?
Other than weighing the pros and cons of the various acquisition methods, it is highly recommended for potential buyers to also underline the context of the acquisition (i.e. understanding the potential tax/corporate implications on acquiring assets or companies overseas, etc). Potential buyers should also not only perform a valuation analysis on their shortlisted asset/company, but also follow a detailed and reasonable decision-making process before making their decision. Such process may be in the form of a checklist to facilitate better decision-making process.
For explanatory purposes, here is a simple example that potential buyers may consider using:
Written by: Keith Chiong (by Assembly Works)