GE Capital announced that it was on track to sell between US$120 – 150 billion in assets by the end of 2016. Keurig Green Mountain recently announced that it entered into a share transaction valued at approximately US13.9 billion. Both of these are examples of the sale of a business. They, however, differ in the way the sale of the business is structured. Whether the sale of a business is structured as a share transaction or an asset transaction will largely depend on whether you are the vendor or the purchaser. Each comes with own unique set of advantages and disadvantages, and every transaction structure will ultimately be a compromise between the vendor and the purchaser.
In a share transaction, a purchaser acquires all of the rights and benefits of the vendor, which would include the vendor's contracts, permits and licenses. From a purchaser's perspective, a share transaction may be beneficial in that clients of the target company will not be disrupted, and the purchaser may avoid the need to obtain third-party consents in contracts or licenses (except for any "change of control" provisions). The downside, of course, is that an acquisition of all the rights and benefits usually comes with all of the liabilities and problems of the vendor including the possible acquisition of contracts which a purchaser may not want. This is one reason why, in a share transaction, purchasers must undertake a thorough due diligence review of the target company to ensure that they know exactly what they are buying. This due diligence review will typically include a legal review of the target company's corporate records, intellectual property, contracts, and public searches to determine any litigation or security interest on any assets of the target company. From a vendor's perspective, a share transaction may be preferable in that the liabilities of the target company will not remain with the vendor. On the other hand, vendors in share transactions may have to settle for a lower sale price as a compromise for any liability that the purchaser takes on.
As noted above, in an asset transaction, purchasers have great flexibility to freely choose which assets to purchase from the vendor. This typically allows the buyer to avoid any unknown or contingent liabilities. One disadvantage for purchasers in an asset transaction is that third-party consents will likely be required. The due diligence review that a purchaser conducts in an asset transaction is similar to that in a share transaction, except that there is a specific focus on the assets being acquired. From a vendor's perspective, an asset transaction may be the opportunity the vendor was looking for to sell unwanted assets. However, vendors are at a disadvantage in asset transactions in that they will continue to be liable for obligations not acquired by the purchaser.
Of the two types of transactions, a share transaction is generally a more simple transaction. There is not a "one size fits all" transaction structure for selling a business. The type of transaction structure will depend on the circumstances involved. Benjamin Franklin said death and taxes are the only thing in this world that are certain. Generally, the latter of those two (hopefully not the former) is what will typically drive the way in which the transaction is structured.
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