Asset deal
M&A / Merger ModelBuying the assets and liabilities of a business directly, rather than buying the shares of the company that owns them.
Also written: asset purchase, business and asset sale
In a share deal you buy the company and everything inside it, known and unknown. In an asset deal you buy named assets and assume named liabilities, and everything you did not name stays with the seller. That is why buyers like asset deals: historic tax exposures, litigation and unknown liabilities are left behind.
The tax difference is the one that shows up in a model. An asset purchase gives the buyer a stepped up tax base in what it bought, so the depreciation and amortisation of the write ups is deductible where local rules allow and the saving is cash. A share purchase leaves the tax base untouched, so the same charge saves nothing and a deferred tax liability is recognised instead.
Europe has no equivalent of the American election that allows a share purchase to be treated as an asset purchase for tax. The choice is therefore structural rather than a filing decision, and it is negotiated. Sellers usually resist an asset sale, because it can leave them taxed at the company level and again on extracting the proceeds, and because they are left holding an empty entity.
The practical costs sit in the transfer itself. Contracts, licences, property leases and permits may each need consent to move, employees transfer under national protection rules, and the mechanics take time. A business with thousands of customer contracts is often impossible to sell any way other than by shares.
Worked example
A deal creates 450 of write ups amortised over ten years, so 45 a year of extra charges.
In an asset deal that 45 is deductible, saving 11.25 of cash tax a year at a 25% rate, and no deferred tax liability arises.
In a share deal the same 45 saves nothing in cash, a deferred tax liability of 112.5 is recognised at completion, and its unwind produces an accounting credit rather than a lower tax bill.