Share Sale/Purchase

This involves a purchaser buying either all of another company’s shares, or a controlling stake in another company. Following a share sale, the target company retains all its assets and liabilities; the purchaser simply acquires all (or a portion of) the target company itself. The purchaser will however indirectly own/take on the target’s assets/liabilities by virtue of its ownership of the target’s shares.

✓ Control: easier for purchasers to gain full control over a company, including its human capital, tangible assets (e.g. plant and machinery) and intangible assets (e.g. business relationships, good will/brand loyalty, intellectual property rights, and knowledge of internal processes). 

✓ Logistics: buying a business, rather than specific assets from that business, is more likely to result in business continuity post-acquisition. This is because all the resources needed to operate the target and its assets will already be in place.

✓ Savings: purchasers are exempt from goods and services tax if acquiring assets through a share sale.

✗ Shareholders: it may be difficult for buyers to persuade a sufficient proportion of shareholders to agree to a sale.

✗ Risk: purchasers will take on the target’s existing liabilities and obligations.

Asset Sale/Purchase

This involves a purchaser buying specific assets owned by another company, such as intellectual property, real estate or vehicles.

✓ Flexibility: a purchaser can essentially “cherry-pick” the assets that will form part of the transaction, giving it the flexibility to acquire - and thus pay for - only the assets that it wants or needs. 

✓ Valuation: valuation may be less subjective as intangible assets such as customer loyalty need not be considered.

✓ Due diligence: it may be quicker and easier to carry out due diligence relating to specific assets as opposed to an in-depth investigation into an entire company.

✓ Risk: there is a lower risk of the purchaser taking on unforeseen liabilities, as it will only acquire liabilities inherently linked to the assets it is acquiring. 

✓ Tax: tax law in the UK enables the market value of assets purchased to be offset against tax, even if the purchaser paid less than the market value. Buyer may however incur stamp duty land tax on real estate acquisitions.

✗ Control: purchasers will not gain full control over the entire company and may therefore fail to benefit from any employees or internal knowledge and processes that may have helped to facilitate the efficient and effective utilisation of the assets.

✗ Seller may want a clean break: a seller may also refuse to agree to an asset sale, as this could essentially leave them on the hook for a range of liabilities, whilst depriving them of the assets needed to generate revenue.