Choosing between a share and an asset deal
In a share purchase, the buyer acquires the target company as a whole,
including its liabilities, known and unknown, subject to whatever protection
the warranties and indemnities provide. In an asset purchase, the buyer
selects specific assets and, generally, leaves behind liabilities that are
not expressly assumed, which can make it more attractive where the target
carries legacy risk. The choice also affects tax treatment, the consents
required from counterparties whose contracts are being transferred, and the
overall complexity of closing, and there is no single answer that suits every
transaction.
What diligence actually needs to cover
Diligence typically reviews corporate records and shareholding history,
material contracts and whether they contain change-of-control clauses,
litigation and regulatory history, employment arrangements, and intellectual
property ownership. The point of diligence is not simply to produce a report;
it is to identify issues that should change either the price, the warranties
demanded, or the structure of the deal itself. A change-of-control clause
buried in a key customer contract, for instance, can require that
counterparty’s consent before the deal can close at all.
Warranties, indemnities, and disclosure
Sellers give warranties as to the state of the business, and buyers rely on
those warranties in pricing the deal. A disclosure schedule qualifies those
warranties by setting out known exceptions, and a well-prepared disclosure
schedule genuinely reduces a seller’s post-closing exposure. Specific
indemnities are used for known risks identified in diligence, such as a
pending tax dispute, where the parties agree the seller bears that particular
risk regardless of the general warranty and liability cap.
Escrow and post-closing
Parties frequently agree to hold back a portion of the purchase price in
escrow, released after a defined period if no warranty claim is made, to
give the buyer practical recourse without needing to pursue a seller who may
be difficult to locate or recover from later. Post-closing, integration work
such as employee transition, contract novation, and IT system consolidation
typically continues for months, and we advise on structuring the transition
period itself carefully, not only the transaction that precedes it.
