An asset sale, sometimes referred to as an asset purchase agreement (APA) or asset deal or asset acquisition, is an agreement where a buyer agrees to purchase a company’s assets. The important distinction here is that the agreement does not require the buyer to purchase ALL the assets of the company. The parties can bargain over which assets will be acquired and which liabilities will be assumed, thus making the transaction can be far more flexible in its structure and outcome than a merger or acquisition. The buyer is able to specify not only what assets it wants to buy, but at the same time specify what assets it does not want to buy.
An asset sale contract often contains (but is not limited to) the following provisions
- purchase price
- monthly installments
- liens
- encumbrances on the assets or condition precedent for the closing.
An asset sale differs from a stock purchase where company shares representing ownership either in full or part control of the company are sold. It is often used when the buyer is looking to acquire a single division or business unit within a company. In addition, the term should not be confused with a divestiture which relates to a mandated sale of a specif business unit, whereas a spinoff is the sale of a business unit into a stand alone entity but the seller retains its independance.
Asset Sale in Practice
Due to the extra effort required to identify and transfer every important asset the sale can be complex and time consuming. Assets, such as equipment, may be transferred easily by a bill of sale or other instrument of title. Other assets, such as intellectual property or real estate, require a separate assignment or deed with different mechanics and formalities. In addition, assets such as permits may not transferable at all.
The main risk to buyers in an asset purchase transaction is that a buyer may fail to purchase all of the assets it needs to run the company effectively. Finally, there is a risk that the seller could retain sufficient assets to continue as a competing going concern. This risk is usually mitigated by requiring the seller to covenant not to compete with the buyer. Asset sales are sometimes resisted as they may leave the seller with liabilities and without any assets to satisfy those liabilities. There are also tax issues to be taken into account.
