What’s for Sale: Your Company, or Your Assets?

Even for companies promising strong future growth, a potential buyer may be looking for more immediate value. For some buyers, the value of an acquisition lies in its current assets, and companies with such highly valued assets may find themselves in a strong negotiating position. However, when a sale involves assets rather than the whole company, both parties need to work for a deal that preserves asset values for the buyer while providing fair compensation to the seller.

Know your assets

Some buyers are most attracted by hard assets, such as real estate and equipment. Often, owners are unaware how much office buildings, production facilities or investment properties have appreciated significantly since they were purchased. If your region is enjoying a real estate boom, such assets could raise much-needed cash. Large equipment is also potentially valuable — particularly if it’s already operated by trained personnel who can run it without significant downtime during an ownership transition.

Many technology and media companies derive much of their value from intellectual property (IP). If you own patents and copyrights, even inactive ones, there may be a buyer who wants to pay for them.

Finally, consider the value of your ownership stakes in other businesses. Yahoo’s merger with Verizon was driven in part by Verizon’s 15% stake in China’s massive online retailer Alibaba.

Beauty is in the eye of the buyer

Before putting your company on the market, review your assets and rank them in terms of their potential value. A third-party appraiser, asset-based lender or leaseback specialist can help you estimate current market values. It’s important to be vigorous in your assessment, as some assets that may seem insignificant at first could be precisely what a buyer is looking for. To find out what purchasers may be looking for, research some recent acquisitions in your industry to learn the kinds of companies and assets that seem to be in high demand. (For more information on valuations, click here.)

A prospective buyer may express interest only in certain assets. Don’t reject such a proposal out of hand, as the deal may be more advantageous than it first appears. Buyers often keep their acquisition strategy private during deal negotiations. However, by listening carefully to the kinds of questions a prospective buyer asks and noticing where its deal team focuses due diligence, you can discern what they’re most interested in.

If selling assets isn’t appealing, you can push for a full acquisition by demonstrating how your company’s assets are connected to the company as a whole. For example, the value of a trademark may depend on your research and development staff’s continuing involvement. Or a real estate holding that benefits from tax breaks negotiated between the current owner and a municipality could become void if the property were to be transferred to another company.

The fine print

Selling and transferring a company’s assets can be complex and should be worked out in detail with professional advisors. (See “Protect your deal,” below.) Among the issues you’ll need to address are:

Document transfer. This can be a particularly contentious subject because IP might have been developed jointly with another party no longer affiliated with the selling company. In such cases, there may be restrictions on transferring those assets.

Taxes. Asset sales usually impose a heavy tax burden on sellers. It may be worth negotiating a deal for stock in your buyer’s company instead. Remember to watch out for local and state taxes that may be triggered when you sell real estate.

Antitrust obstacles. State and federal regulators may treat the transfer of asset ownership as a red flag and decide to investigate your deal. That’s because acquiring new IP can give a company too great a competitive edge in a particular sector — for example, if a buyer acquires software that’s essential to many of its competitors’ products.

Not the usual acquisition

Asset sales can be a good deal for sellers, depending on your objectives. However, such transactions are different from full company mergers and acquisitions, particularly when it comes to minimizing taxes and transferring ownership. So be sure to work with advisors like Weaver who have specific experience with asset sales.

Protect your deal with strong warranties

The representations and warranties document is a heavily negotiated aspect of any M&A deal. But when asset transfers are core to a business buyer’s strategy, the wording of this document must be ironclad.

Imagine that a seller wants to use a particular trademark post merger. The reps and warranties document would need to guarantee this option and lay out exactly how the trademark can be used. For example, the buyer might be instructed to license the trademark to the seller after the transaction closes.

Other issues that should be addressed in a reps and warranties document are:

Ownership status. Does the seller fully own the assets it’s selling? Do other stakeholders need to be part of the transaction? Are there liens on these assets?

Protections. Are all copyrights and trademarks legally secured? Does any intellectual property infringe on the rights of a third party?

Seller obligations. What obligations does the seller have to help the buyer ascertain and secure asset ownership? What are the buyer’s rights in the event of lawsuits or other indemnification related to particular assets? 

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