Acquisition Structures

A Brief Introduction by
Corporaider@Scribd
Asset Purchase Structure
Advantages
Buyers and Target can transfer only the assets
and liabilities they wish to transfer.

For Buyer, lowers the risk of successor liability

since Target remains an existing entity (subject
to risk of fraudulent conveyance).

For Buyer, potentially better ability to write up

basis of acquired assets.

As opposed to stock purchase (but not merger)

may require only majority shareholder approval
(or less if not substantially all the assets).

Disadvantages
Certain assets (contracts with third parties,
permits) may not be transferable without third
party or regulator consent, adding condtionality
and risk to closing deal.

Target shareholders of C corporations can not

easily get consideration without being subject to
a tax on the dividend.
Stock Purchase Structure

Advantages
Target remains in existence so many contracts
and permits will remain in force despite the
change in control.

Shareholders receive funds directly so avoids

double taxation issue.

Disadvantages
Buyer takes all of Target's liabilities, known and
unknown.

Dependent on getting at least 90% of

shareholders to sign on to agreement and
buyers often will want 100% to avoid disputes
with dissenting shareholders.
Direct Merger
Advantages
Conversion is via operation of law so a greater
number of contracts and permits are likely to
survive than an asset purchase agreement.

Shareholders receive funds directly so avoids

double taxation issue.

If most of consideration is Buyer shares, can be

tax free reorganization.

Does not require 90 or 100% shareholder

approval.

Disadvantages
Buyer takes all of Target's liabilities, known and
unknown.

Target does not survive so greater chance of

contracts/permits not surviving than a stock
purchase or reverse triangular merger.

Post acquisition no separate Target for liability

separation.
Reverse Triangular Merger
Advantages
Shareholders receive funds directly so avoids
double taxation issue.

If most of consideration is Buyer shares, can be

tax free reorganization.

Does not require 90 or 100% shareholder

approval.

Target remains in existence so many contracts

and permits will remain in force despite the
change in control. Also provides another layer
of liability insulation

Disadvantages
Buyer takes all of Target's liabilities, known and
unknown.

Some companies do not like to create new

standalone subsidiaries (requires more
intercompany arrangements).
Forward Triangular Merger
Advantages
Shareholders receive funds directly so avoids
double taxation issue.

If most of consideration is Buyer shares, can be

tax free reorganization.

Does not require 90 or 100% shareholder

approval.

Conversion is via operation of law so a greater

number of contracts and permits are likely to
survive than an asset purchase agreement.

Disadvantages
Buyer takes all of Target's liabilities, known and
unknown.

Target does not survive so greater chance of

contracts/permits not surviving than a stock
purchase or reverse triangular merger.

Some companies do not like to create new

standalone subsidiaries (requires more
intercompany arrangements).
Some Final Thoughts

If the target is a pass-through entity (LLC, S corporation, limited

partnership) then double-taxation is not an issue.

It is possible to get asset purchase treatment on an equity

purchase via election.

If there needs to be different amounts of consideration to

different stockholders within the same class, a stock purchase
agreement offers greater flexibility more easily than a merger.

Depending on the structure there are regulations that may or

may not come into play (bulk sales, etc.)