Alternatives to acquiring a company via an asset deal or a share deal
As an alternative to a company purchase, various forms of cooperation as well as a hidden company purchase are also possible
- An alternative to a company purchase is the agreement of a management contract. "A management contract exists when a company ("owner company") engages another company ("manager") to manage its (own) company for its account" (source: https://de.wikipedia.org/wiki/...)
- Another alternative to the purchase of a company that occurs in practice is the business lease. "The operating lease pursuant to section 292 (1) no. 3 AktG is an enterprise agreement by which a public limited company or partnership limited by shares undertakes to lease the operation of its enterprise to another party." (Source: https://de.wikipedia.org/wiki/...)
- A tracking stock is an ordinary share issued by the parent company that tracks the performance of a particular division without having any claim on the assets of the division or the parent company
- A joint venture or a consortium (ARGE) can also be an alternative to a company purchase. Often joint ventures and ARGEs are later completely taken over by one of the participating companies. Tracking stocks" are a special form of arrangement.
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The buyer does not want to be publicly recognisable as the buyer to customers, competitors and employees: In M&A practice, the following variants come into question in order to carry out a hidden company acquisition:
- Sub-participation in the shareholding of the shareholder (seller)
- Trust agreement
- Purchase of a company's non-performing receivables. The aim is the subsequent exchange of the purchased non-performing receivables for shares in the company ("debt-equity swap").
- Silent participation
- Sub-participation in the shareholding of a shareholder (seller)
- Purchase with condition precedent (long term between signing and closing). In principle, a time delay (e.g. 2 years) and not a longer-term hidden company purchase.
- Purchase of the shares of a shareholder by the company to be acquired itself
The asset deal in the acquisition of a company - purchase of individual assets (assets or business assets)
In an asset deal, the buyer takes over part of the assets of a company from the seller - the object of purchase is not the shares of the company. The assets are individual economic goods that are transferred from the seller to the buyer in an asset deal. Assets that are transferred in an asset deal are, for example: products, patents, equipment, land and buildings, or contracts with customers and employees. The sale of a sole proprietorship is always an asset deal, because assets are always transferred individually.
Advantages of the asset deal
In an asset deal, the buyer examines each individual asset of the seller. The seller is liable for all obligations related to the business (e.g. taxes, liability, guarantees, ...), as no shares in the business are transferred. Both parties - buyer and seller - are liable for business taxes that are part of the assets taken over in an asset deal. Advantages of the buyer: "Cherry picking", "what you see is what you get", capitalisation of the assets leads to depreciation potential for the buyer.
Advantages of seller: only part of the company is sold and this part achieves a higher purchase price due to the low risks for the buyer. The purchase price does not flow to the shareholders but to the company. This usually leads to very low taxation for the seller in contrast to a share sale. Another advantage from the point of view of the seller of assets is the significantly lower liability risks.
Disadvantages of the asset deal
The contracts or contractual relationships in an asset deal are more extensive than in a share deal. It is crucial in an asset deal that all transferred assets are clearly defined. When transferring contracts (legal relationships), the contractual partners (buyer and seller) must explicitly agree to the transfer!
Their consent is also required when transferring employees and their employment contracts. Section 613 a of the German Civil Code (BGB) states that the buyer enters into the rights and obligations arising from employment relationships/ employment contracts upon sale.
The decisive factor is that the transfer of an undertaking involves the sale of a so-called economic unit. Paragraph 613 a (6) gives the employee an explicit right to object to the transfer of the undertaking. If the employee objects to the transfer of the business, his or her employment relationship with the previous employer continues unchanged.
What does a singular succession mean in the context of an asset deal? In simple terms, as a result of singular succession, each individual contract (employee, customer, supplier, landlord, insurance, etc.) requires the consent of the respective contracting party to the transfer of the contract from the transferor to the transferee. If several hundred contracts are taken over, one has to reckon with a considerable amount of time to obtain the consents.
Asset Deal versus Share Deal - German Tax Law
For the seller of a company, the share deal (sale of company shares) is almost always advantageous from a tax point of view. From a tax point of view, the legal form of the company to be sold is decisive. If the company shares to be sold are held by a corporation, the capital gain (sale proceeds) is taxable at approx. 1.5 % (calculation logic: approx. 30 % of the 5 % gain from the sale).
If the shares in the company are not held by a corporation but by a natural person, then the shares sold (sales proceeds) are taxed according to the partial income procedure, i.e. 60% of the profit from the sale is taxed at the personal income tax rate of the natural person. With taxation based on the top tax rate, this leads to a tax burden of approximately 28 %.
In the asset deal, the sale of individual assets leads to a taxation at the corporation of approximately 30 %. If in the next step the resulting profit (approx. 70 %) rises to a maximum of approx. 47 % for the natural person. If the shareholder is not a natural person but a corporation, this leads to a tax burden there of approx. 31 %.
Company acquisition definition
According to Wikipedia, the definition of a company purchase is "... the neutral description of a mergers & acquisitions transaction...". Synonyms for the term "company purchase" are "company takeover" and "takeover". In the case of a company purchase, the company to be taken over is also referred to as the "target" or "target company".
In the case of a company purchase, a purchase price is paid or shares in the company are exchanged. The company to be acquired is taken over in parts or as a whole. Every company purchase is based on a comprehensive set of contracts, which are usually the subject of lengthy negotiations and have to be notarised. This set of contracts is known in English as a SPA, or Sales and Purchase Agreement, and in German as a Unternehmenskaufvertrag.
KP Tech Corporate Finance Advisory
As an owner-managed and independent management consultancy, we specialise in M&A and corporate finance consulting in Germany, Austria and Switzerland. KP Tech Corporate Finance is headquartered in Munich, with additional offices in Frankfurt am Main, Berlin and Düsseldorf. Our clients benefit from more than 20 years of experience in international corporate finance consulting. The focal points of our advice are the topics: Company sale, company acquisition, company valuation, company succession, as well as private equity consulting.