M&A: Should you do assets deal or shares deal?

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A client wanted to acquire shares in a company. As we discussed further, it was clear that the buyer wanted to acquire certain assets only of the company. The company was supposedly dormant with a few assets and no ongoing operations.

For unknown reason, the seller was only willing to sell by way of shares sale instead of assets sale.

A thought crossed my mind – are there any liabilities in the target company which may be inadvertently transferred to the buyer in an assets deal?

To make an informed decision on whether to structure a deal as an assets deal or shares deal, consider the following factors:

1. What does the buyer want to acquire or exclude from the acquisition?

In a share purchase transaction, the buyer acquires the entire target company with all its assets, contracts, licences and employees. However, it also means taking on all liabilities and obligations of that company. There may be conditions in the contracts and licences which require consents from the counterparties of the contracts or authorities in the event of change of shareholder(s) or control in the target company. To the outside world, nothing seems to change much other than the shareholders of the company.

In an asset purchase, the parties agree on the assets and liabilities which the buyer is willing to acquire. The rest of the assets and liabilities remain with the selling company.

2. Which structure is more practical for the parties involved?

In an asset purchase, formal transfer of real estate, contracts, intellectual property rights and certain intellectual property rights are required e.g. novation of contracts and physical delivery of moveable plants and machinery. There may be more disruption to the business than on a share purchase.

On the other hand, all that is needed is a formal transfer of shares on a sale and purchase of shares.

3. What is the stamp duty implication?

Sale of non-listed shares of a Malaysian incorporated company is subject to stamp duty at 0.3% of the sale consideration or value of the shares on the date of transfer, whichever is higher.

The stamp duty for transfer of any property (except stock stares, marketable securities and account receivables) are tiered based on the amount of the money value of the consideration or market value of the property, whichever is higher (Paragraph 32, First Schedule, Stamp Act 1949).

This post first appeared on LinkedIn on 3 August 2023.

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