Asset Deal

In an asset deal, the buyer does not acquire the shares of a company, but individual assets such as machinery, contracts, or brands. Selected liabilities may also be transferred. This allows the buyer to decide specifically which parts of a company to acquire and which not.

Because assets are transferred individually, the purchase agreement must describe the scope of the acquisition precisely. Transferring contracts generally requires the relevant counterparty’s consent, which can create considerable coordination work for lease, supply and customer agreements. An important exception concerns employment: on a transfer of an undertaking in Germany, employment relationships generally transfer by operation of law. Employees must be informed and may object to the transfer.

Economically, the focus is on defining the acquired business. Buyer and seller must agree which inventories, receivables, liabilities and open orders are included and which remain with the seller. This can give the buyer more control over the risks acquired than purchasing the entire company. Statutory liability rules may still apply, however, so an asset deal is not automatically free of legacy exposures. In distressed situations, the structure can help separate a viable business or business unit from a financially troubled company. The purchase price is allocated to the acquired assets. To the extent this creates higher tax depreciation or amortisation, it can benefit the buyer. The seller’s tax treatment depends in part on its legal form and may influence price negotiations.

Permits, IT systems and shared services matter in practice. They may not immediately be available to the acquired business on a stand-alone basis. Transitional arrangements may therefore be needed to keep production, billing and customer service running after completion. The cut-off for ongoing orders also needs careful definition so that part-performance, prepayments and warranty claims are allocated clearly.

Note: This explanation is for general information only and does not constitute tax or legal advice. The tax and legal position depends on the individual case and may change with new legislation or case law. For a binding assessment, please consult a qualified tax adviser or lawyer.