Asset Sale vs. Stock Sale: What's The Difference?

Asset sale is when the target company writes up the value of the assets on its BS to the fair market value before selling the business.

The acquirer prefers to treat the M&A transaction as an asset sale given it benefits from a higher tangible book value in its tax financial statements allowing it to save on taxes in the future and Goodwill even though goodwill cannot be amortised in its IFRS financial statements they can be amortised in its tax accounts allowing it to save on future taxes.

Stock sale is when the target company sells itself without increasing the value of the assets on the BS to its fair value.

The target company prefers a stock sale given tangible assets when written up can attract a higher ordinary income tax rate. The sellers might be double taxed – once for selling the assets to an external company and then again if the shareholders draw that money out from the business.

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