ACQUISITION STRUCTURES

Submitted To :
Submitted By:
Ms. Amisha Mehta
Kunal Kashyap (11)
Sumit Kumar (23 )

What is Acquisition
Structure???

Types Of Acquisition Structure

There are three common types of acquisition
structure Asset Purchase
Stock Purchase
Merger

Asset Purchase

An asset purchase is where the buyer

acquires some or all of the assets of the
target, usually in exchange for cash or
buyer shares.
In this type of transaction, the buyer is
buying only those assets and assuming
those liabilities of the target that it chooses
to acquire.
The target continues to exist, but with very
different assets, liabilities and operations
than prior to the acquisition.

Understanding Asset Purchase

Asset Purchase : Advantages

Unknown, undisclosed or contingent

liabilities do not carry over to the buyer.
Existing union agreements do not carry over
to the buyer.
Existing employee pension and benefit
plans do not carry over to the buyer.
Step up in tax basis of acquired assets,
resulting in smaller tax deductions.
More flexibility in choosing accounting
treatment for acquired assets and liabilities.

Asset Purchase : Disadvantages

Corporate identity and existing goodwill are not

preserved.
Corporate structure and operations change,
which is disruptive to the business.
Contracts, employment agreements and other
legal documents may need to be changed,
innovated or transferred.
Advantageous tax assets and rights may be lost.
Bulk-sales laws and other potential restrictions
on the sale of assets may apply.
Sales tax may be an issue.

Stock Purchase

A stock purchase is where the buyer

acquires the voting shares of the target,
usually in exchange for cash or buyer
shares.

In this type of transaction, the buyer is

buying all the assets and liabilities of the
target which, from a legal standpoint,
continues to operate as it did before the
acquisition.

Understanding Stock Purchase

Stock Purchase : Advantages

Corporate identity remains unchanged.

Corporate structure and operations remain unchanged.
Contracts, employment agreements and other legal
documents usually remain unchanged by the
acquisition.
Nontransferrable rights and assets (e.g. franchises,
licenses and permits) can usually be retained by the
Buyer.
Preserves advantageous tax assets and rights (e.g. net
operating loss carryforwards)
Avoids bulk-sales laws and other potential restrictions
on the sale of assets
Avoids sales tax issues

Stock Purchase : Disadvantages

Unknown, undisclosed or contingent liabilities

carry over to the Buyer
Existing (possibly disadvantageous) union
agreements carry over to the Buyer
Existing (possibly disadvantageous) employee
pension and benefit plans carry over to the Buyer.
Less ability to cherry pick assets and liabilities
No step up in tax basis of acquired assets,
resulting in smaller tax deductions
Possible right of appraisal issues must be
addressed if there are dissenting shareholders

Merger

A merger is where two or more

companies combine their operations and
assume a new, combined legal identity.
In this type of transaction, one party
merges into the other, receiving shares in
the surviving corporation.
Following the merger, the merging party,
also known as the disappearing
company, ceases to exist.

Understanding Merger

Merger : Advantages

Legally simple.
Less costly to affect than an acquisition.
Contracts, employment agreements and
other legal documents usually remain
unchanged by the acquisition.
Preserves advantageous tax assets and
rights.
Avoids bulk-sales laws and other potential
restrictions on the sale of assets.
Avoids sales tax issues.

Merger : Disadvantages

Agreement of shareholders is required to

affect a merger.
Cooperation of both firms management
is required to affect a merger.
Unknown, undisclosed or contingent
liabilities carry over to the Surviving
Company
Existing employee pension and benefit
plans carry over to the Surviving
Company.

CASE STUDY