Myth #7 - Purchasers buy only Assets and Sellers sell only Shares.
At an initial meeting with a prospective purchaser, one of the first things the purchaser will tell us is that their professional advisors have recommended they purchase only Assets and not Shares. Usually, the purchaser does not fully understand what they have told us, only that they are sure that they should buy Assets.
On the other side of the transaction, the majority of the vendors we meet with will eventually tell us that they have been told by their professional advisors to sell only shares. Given the current tax laws we have accepted that most vendors will want to sell shares. So, on one side of the transaction, we have the purchaser who will only purchase assets, and on the other side we have the vendor who will only sell shares – obviously, this makes it difficult to successfully complete a transaction.
The reality is the vast majority of our transactions are share transactions. We find that once the purchaser understands the basics of a share sale they are usually much more willing to proceed. The fact is that in the end there really shouldn’t be much difference between a share and asset sale because presumably, a vendor who was previously selling shares would consider selling assets if the after-tax dollars were equal. It has been our experience that once the purchaser learns that the offering price would increase as a result of changing the transaction to an asset sale; they are generally quick to accept the share sale. Therefore we find that the purchaser’s bias for an asset sale is usually a lack of communication or knowledge - it is more the fear of the unknown than anything else.
The fact is that a share sale can often offer the Purchaser certain advantages:
- Transfer of shareholder loans.
- No Sales tax
- Ease of transfer – leases, distributor rights, etc.
Our reality is the vast majority of our transactions are completed on a share-sale basis. Purchasers generally overcome their fear of the share sale once they have a better understanding of the process.