Asset purchase
Also known as: Business transfer, Asset deal
Buying the business instead of the company: only what is on the list transfers, and every consent is somebody else's veto.
1 · SnapshotThe one idea to remember
2 · BeginnerWhat actually happens?
There are two ways to buy a business. You can buy the company that owns it, or you can buy the things it is made of: the machines, the customer contracts, the brand, the staff, the stock in the warehouse.
The second way is an asset purchase. The seller keeps the company. The buyer takes a list.
The advantage is that a list has an edge. Anything not on it stays with the seller, including the lawsuit nobody knew about and the tax bill from six years ago. For a buyer worried about what it cannot see, that is worth a lot.
The disadvantage is that a list has to be moved item by item. A machine can just be handed over. A contract usually cannot — most contracts say the other side has to agree before they can be passed to somebody new. So every customer, every landlord and every supplier gets a say in a deal they are not part of.
- 1
Defining the perimeter3–6 wks
Exactly which assets, contracts, employees and liabilities transfer, listed one by one.
- 2
Diligence4–8 wks
Focused on what is being bought rather than on the whole company, which narrows it usefully.
- 3
Documentation4–8 wks
The business transfer agreement plus every consent, novation and assignment the transfer needs.
- 4
Completion1 day
Title passes to the assets that can pass, and the rest are held on trust until their consents arrive.
- 5
Migration3–18 mths
Systems, people and customers move across, usually under a transitional services agreement with the seller.
What actually transfers — Both sides' lawyers decides. An asset nobody listed does not move, and it is usually discovered by a customer.
Third-party consents — Counterparties and landlords decides. Every contract that cannot be assigned without consent is a veto held by somebody outside the deal.
Who is on the deal
| Who | Side | What they are actually for |
|---|---|---|
| The seller | Sell side | Keeps everything not on the list, including liabilities it would rather have transferred. |
| The buyer | Buy side | Takes named assets and named liabilities, and nothing else. |
| The employees | Neither | Transfer by operation of law in many jurisdictions, on terms neither side is free to change. |
| Counterparties and landlords | Neither | Hold vetoes: every contract needing consent to assign is a decision made outside the deal. |
| The tax advisers | Both | Decide whether this structure is cheaper than buying the shares, which is usually why it was chosen. |
- Desk
- Mergers & Acquisitions
- What transfers
- Named assets, contracts, staff and liabilities
- What stays behind
- Everything not listed, including unknown claims
- Main obstacle
- Third-party consents and change-of-control clauses
- Usually followed by
- A transitional services agreement
What decides whether it completes
Not how hard this is, and not a rating — there is deliberately no total. It says which of five blockers decides whether this transaction happens at all, in the same order on all 70 transaction types so they can be compared. This publication's own reading; see the notice below.
- Pricematters
- Financingbarely applies
- Approvalmatters
- Diligencematters
- Executiondecides it
What decides it here. The economics are usually settled early and the difficulty is mechanical: every contract that needs a consent to move is a veto held by somebody who is not in the room, and an asset nobody put on the list simply does not transfer.
3 · IntermediateHow it runs in practice
The perimeter
The single most important document is the schedule listing what transfers. It is negotiated line by line and it is where deals go wrong quietly: an asset nobody listed does not move, and the way that is usually discovered is a customer ringing to ask why their service stopped.
Typical categories, each with its own transfer mechanism:
- Tangible assets — delivered, or title passes on completion. The easy part.
- Contracts — assigned or novated, and most need the counterparty's consent.
- Real estate — its own conveyance, and leases usually need the landlord.
- Intellectual property — assigned and then registered, jurisdiction by jurisdiction.
- Employees — in many jurisdictions they transfer automatically by law, on their existing terms, whether or not anybody wanted that.
- Permits and licences — frequently personal to the holder and not transferable at all, which means applying afresh.
Consents you will not get in time
Some counterparties will not respond, and a few will use the moment to renegotiate. The standard answer is a holding arrangement: the seller keeps legal title and holds the benefit of the contract on trust for the buyer, passing on the money and taking instructions, until the consent arrives. It works, and it is a reason completion is not really the end.
Employees transfer whether you plan for them or not
Where automatic-transfer rules apply, the staff assigned to the business move with it on their existing terms, and dismissing them because of the transfer is generally unlawful. There are consultation obligations with fixed timetables. This is one of the few parts of an M&A process where getting the sequence wrong creates liability rather than delay.
4 · AdvancedThe numbers & the documents
Why anybody chooses this
Three reasons, in descending order of how often they decide it:
- Tax. The buyer may get a stepped-up base in the assets and future deductions it would not get on a share deal; the seller may face a worse outcome. That opposition is why the choice shows up in the price.
- Liability. Unknown claims stay with the company, which stays with the seller.
- The business is not a company. A division inside a larger group has no shares to sell — see the carve-out, which is this transaction plus a year of separation work.
Where the liability follows anyway
The clean edge is not perfectly clean, and a careful buyer knows the exceptions:
- Employment liabilities usually follow the staff.
- Environmental liability frequently attaches to the land, not to whoever owned it before.
- Some tax regimes impose successor liability on the buyer of a business regardless of what the contract says.
- Product liability can follow the product rather than the entity that made it.
Transitional services, and why they are longer than promised
The seller keeps running payroll, systems and often finance for the business it has just sold. The agreement sets a duration and a price, and it is nearly always extended. The reason is structural rather than anybody's fault: separating systems is discovered rather than planned, and neither side finds out how entangled they were until they try.
The comparison, made once
Set beside the share purchase, this is a straight trade of execution difficulty against ownership risk. A buyer that is confident about diligence and wants speed buys shares. A buyer that has found something it cannot size, or that only wants part of what the company does, buys assets and pays for it in consents.
The formulas above are standard textbook formulations, simplified for teaching. They explain the mechanism — they are not a valuation tool, and they will not reproduce a dealer’s price.
5 · Desk notesHow people on the deal think about it
Now say it back
Close the page and give Asset purchase in four sentences. It takes a minute and it is the only way to find out whether reading it was enough.
- Who wants what — name both sides and what each one is actually trying to get.
- What has to happen, in order — the three or four stages, not the whole timetable.
- Where the money comes from — cash, new shares, or borrowed; somebody has to fund it.
- What kills it — the ordinary way, not the dramatic one.
Where this transaction shows up elsewhere
- MediumHow to Read a Sale and Purchase AgreementPlaybooksThe price is the first page
- MediumPrivate share purchaseDealBuying a private company by buying its shares — and inheriting everything it has ever done