Is a Stock Purchase or an Asset Purchase Best for Your Company?

You’re planning on expanding the strength and capacity of your corporation. Is a stock purchase or an asset purchase best for your company?

What is the Best Way to Acquire a Business in San Diego or Southern California?

What is the best way to acquire a competitor or a business in San Diego or Southern California? There are two primary vehicles to acquire the assets or capacities of another business: an asset purchase and a stock purchase. What is the difference between a stock purchase or an asset purchase and which legal vehicle is best to accomplish your goals?

The attorneys at the Watkins Firm have advised our clients through mergers and acquisitions in San Diego for more than four decades, and we can help to protect your interests, ensure best value and limit exposure to liability while completing the purchase of a competitor, another business, or a portion of their assets.

Asset Purchase

In some cases, you only wish to acquire specific items such as a fleet of bucket trucks, or a distribution facility. In these cases, an asset purchase may be the right option to consider. The asset purchase agreement transfers title to you for the specific portions of the business you wish to purchase, without exposing you to the general liabilities or creditors of the seller. If the asset has an encumbrance, we will need to work through the issue to either assume that obligation or move it to another asset or line of credit for the seller.

There are many portions of a business that can be transferred through an asset purchase agreement including customer bases, real estate and facilities, vehicles, inventory and even accounts receivable. Intellectual property such as logos, trademarks and other registered assets may not be able to be acquired through an asset purchase as they are tied directly to the business itself.

The creditors of a corporation and even minority shareholders may be an issue in these transactions. This is why it is important to work with your M & A attorney at the Watkins Firm.

Stock Purchase

A stock purchase allows you to acquire the entire company, including all intellectual property, logos, brands, and even government contracts. A stock purchase agreement is the path to acquire controlling interest or complete control of a business or corporation. There are substantial risks for both the buyer and the seller in a stock purchase. The keys to a successful stock purchase transaction are accurate valuation, comprehensive due diligence, and strong contracts including the ultimate purchase agreement and the Letter of Intent.

While a recent Harvard Business Review placed the odds of failure in any acquisition at 70% to 85% in a recent article (based on the integration of several large studies) the success rate of the Watkins Firm is the exact opposite.

Why are our M & A transactions to successful? This is where the extensive experience gained across hundreds and hundreds of these transactions comes into play. The Watkins Firm has a proven proprietary library of battle-tested contracts, due diligence checklists and Letters of Intent. We work closely with our client through every step of the process to protect their interests and to facilitate a successful transaction.

It is important to know that if the seller is facing a lawsuit, or has credit obligations or liabilities they will transfer to you along with ownership of the company in a stock purchase.