Mergers, Acquisitions, Divestitures, and Other Restructurings, + Website

Chapter 4Asset Acquisitions and Asset Divestitures

Now that we have the tools to raise funds, let's discuss how to apply those funds toward some acquisition. It is first important to note that when acquiring assets, groups of assets, or business entities, there are three major methods of facilitating the acquisition:

1. Asset acquisitions
2. Stock acquisitions
3. 338(h)(10) elections

Asset Acquisitions

In an asset acquisition, the buyer purchases selected assets in the business and may take on the liabilities directly associated with the assets selected. Here, the net value of the assets purchased are “stepped up,” or written up, on the acquirer's tax balance sheet. In other words, if a buyer pays a higher value for an asset than what is stated on the seller's balance sheet, and that purchase price represents the fair market value of the asset, then that incremental value paid can be amortized (under U.S. tax law) for tax purposes. This amortization is tax deductible. The value of the asset can also be “stepped down” or written down if the purchase price is less than what is stated on the seller's balance sheet.

Stock Acquisitions

In a stock acquisition, the buyer purchases the target's stock from the selling shareholders. This would result in an acquisition of the entire business entity—all of the assets and liabilities of the seller (some exceptions will be later noted). In a stock acquisition, if the purchase price paid is higher than the value of the entity as per its balance ...