FAQ

An asset sale is a type of deal structure in Mergers & Acquisitions (M&A) where the buyer acquires selected assets and liabilities of the target company—rather than buying the company itself. This allows the buyer to choose the specific assets they want, while leaving behind unwanted assets or liabilities.

In an asset sale, the buyer typically purchases both tangible assets (such as equipment, inventory, and real estate) and intangible assets (such as intellectual property, customer lists, and goodwill). The buyer may also assume certain liabilities, like accounts payable or outstanding debt. The exact assets and liabilities being transferred are detailed in the purchase agreement between buyer and seller.

Advantages of an Asset Sale

• Flexibility – The deal can be structured around the specific needs of both parties, making it highly customizable.

• Tax Benefits – Buyers may depreciate acquired assets, while sellers may offset gains or losses against other tax liabilities.

• Reduced Liability – Buyers generally avoid unknown or contingent liabilities since they only assume those explicitly outlined in the agreement.

• Simplified Process – Because ownership of the company itself is not transferred, asset sales are often faster and easier to complete.

Disadvantages of an Asset Sale

• Contract Transfers – Contracts, permits, and licenses often need to be reassigned, which can create delays.

• Employee Retention – Transferring employees to the new entity may require additional agreements and can affect morale.

Bottom line: An asset sale offers flexibility and liability protection for buyers while still providing tax benefits to both parties. However, it can add complexity in areas like contract transfers and employee continuity.

Download PDF

A financial buyer is an investor—such as a private equity firm, venture capital fund, or investment company—whose main goal is to generate a strong return on investment. Instead of running a business long term, they focus on increasing its value and selling it later at a profit.

Unlike strategic buyers, who acquire companies to expand markets, add technologies, or strengthen operations, financial buyers zero in on the numbers—revenue growth, profitability, and cash flow. They often look for companies with strong growth potential or undervalued assets they can improve through added capital, financial structuring, or operational expertise.

Financial buyers typically plan for a shorter ownership horizon—often just a few years. Their exit strategies may include selling to a strategic buyer, another financial buyer, or going public through an IPO.

To fund acquisitions, financial buyers rely on different financing methods, the most common being a leveraged buyout (LBO), which combines debt and equity. They may also use mezzanine financing, convertible debt, or preferred equity to structure the deal.

Overall, financial buyers are a powerful force in the M&A market. They bring capital and liquidity, and their operational and financial expertise can unlock significant value for companies and their shareholders.

Download PDF

In Mergers & Acquisitions (M&A), a strategic buyer is typically another company looking to acquire a business in order to achieve long-term growth goals—not just a financial return. Their motivation is strategic: expanding market share, diversifying products, entering new regions, or strengthening their competitive position.

Unlike financial buyers, who focus mainly on return on investment, strategic buyers seek to create lasting value within their own organization. This might involve acquiring complementary technologies, gaining access to new distribution channels, or eliminating a competitor.

Strategic buyers usually operate with a clear growth plan and may work closely with investment banks and advisors to identify and evaluate the right opportunities.

When it comes to financing, they have options: acquisitions can be funded with cash, stock, debt, or a mix of these. While debt may be part of the equation, strategic buyers are generally more cautious about overleveraging, since maintaining financial strength is key to their long-term strategy.

In short, strategic buyers are a driving force in the M&A market. By leveraging their operational expertise and strategic advantages, they aim to create sustainable value through acquisitions—not just for today, but for the future.

Download PDF

In Mergers & Acquisitions (M&A), an institutional buyer is a large entity that invests on behalf of others—such as pension funds, endowments, insurance companies, or financial institutions. They can act as either strategic buyers (purchasing for long-term growth) or financial buyers (seeking investment returns).

How They Operate:

• Investment Focus – May invest through private equity, venture capital, or hedge funds, depending on strategy.

• Why They Invest – Seek high returns, diversification, and exposure to successful companies.

• Resources & Expertise – Bring deep financial strength, operational experience, and access to capital.

• Market Presence – Often work with investment banks and advisors to find and pursue large-scale transactions.

Key Takeaway:
Institutional buyers are a powerful force in M&A. With their capital, expertise, and scale, they provide liquidity to the market while helping companies grow and create long-term value.

Download PDF

Private equity groups (PEGs) are financial buyers in the M&A market. Their main objective is to acquire companies, grow their value, and generate strong returns for investors—typically within three to seven years.

How They Operate:

• Identify Targets – Use investment banks, industry contacts, and proprietary deal flow to find attractive opportunities.

• Conduct Due Diligence – Analyze financials, management, market position, and growth potential.

• Negotiate & Structure Deals – Work with advisors to set purchase price, financing, and deal terms.

• Finance Acquisitions – Use a mix of equity, debt, and mezzanine financing.

• Grow Portfolio Companies – Provide strategic and operational support, from cost-cutting and efficiency improvements to new revenue initiatives and add-on acquisitions.

Key Takeaway:
Private equity groups are a driving force in M&A. They bring capital, expertise, and hands-on support to help companies scale—while aiming to deliver attractive returns for their investors.

Download PDF

A Letter of Intent (LOI) is a written document that outlines the preliminary terms of a proposed transaction between two or more parties. While generally non-binding, it serves as an important first step in expressing serious interest in pursuing a formal agreement—such as a merger or acquisition, partnership, or joint venture.

A typical LOI may include:

• The parties involved

• The nature of the proposed transaction

• Key terms and conditions (e.g., purchase price or financial terms)

• A description of the assets, services, or shares being exchanged

• Conditions that must be met before finalizing the agreement

• A target timeline for completing the transaction

Although an LOI is not a legally binding contract, it plays a critical role in:

• Establishing a framework for negotiations

• Outlining expectations for both sides

• Facilitating due diligence before drafting a formal agreement

Once the LOI terms are agreed upon, the parties can move forward with a legally binding contract that incorporates those terms.

⚖️ Note: The contents of an LOI may vary depending on the transaction, and it is always advisable to seek legal guidance before entering into any business agreement.

Download PDF

In Mergers & Acquisitions (M&A), an Indication of Interest (IOI) is an early-stage letter that expresses a company’s interest in acquiring another business or exploring a merger. It is often one of the first formal steps in the M&A process and serves to open discussions between the parties.

What an IOI Typically Includes:

• Information about the acquiring company (financial position, strategic objectives)

• Proposed terms of the transaction (purchase price, structure, conditions, contingencies)

• Timeline or expectations for moving forward

Purpose of an IOI:

• Signals serious interest without being a binding commitment

• Opens the door to negotiation and due diligence

• Gauges whether the seller is open to pursuing a transaction

Best Practices:

• Should be written clearly and concisely to avoid misunderstandings

• Needs to be backed by financial and operational analysis of the target company

• Should be crafted with input from legal and financial advisors to ensure the proposal is viable and credible

Key Takeaway:
An IOI is not a binding contract—but it sets the tone for negotiations and can significantly influence the direction and outcome of an M&A deal.

Download PDF

In Mergers & Acquisitions (M&A), due diligence is the process of thoroughly investigating a target company to assess its true value and uncover any risks that could affect the transaction. It is a systematic review of the company’s business, financial health, legal standing, and operations.

When It Happens:

• Begins after a Letter of Intent (LOI) or term sheet is signed.

• Conducted before finalizing the purchase agreement.

What It Covers:

• Financial statements, tax records, and forecasts

• Contracts, legal documents, and compliance issues

• Intellectual property, technology, and assets

• Employee records, benefits, and HR matters

• Market position, customers, and suppliers

Purpose of Due Diligence:

• Ensures the buyer makes an informed decision about whether to proceed, and at what price/terms

• Identifies risks, liabilities, or deal breakers

• Provides a basis for negotiating warranties, indemnities, and protections in the purchase agreement

How It’s Done:

• Involves lawyers, accountants, and other specialists

• Scope varies depending on the size and complexity of the deal

Key Takeaway:
Due diligence is a critical step in M&A. It gives the buyer confidence in what they are acquiring and helps ensure the transaction is based on facts—not assumptions.

Download PDF

In Mergers & Acquisitions (M&A), an escrow account is a common tool used to reduce financial risk and protect both parties during a deal. Think of it as a neutral holding place for money until all conditions of the transaction are satisfied.

Here’s how it works in practice:

• Security for the Buyer
  Buyers often ask sellers to set aside a portion of the purchase price in escrow. This ensures money is available if unexpected issues arise—like a breach of warranties or undisclosed liabilities.

• Protection for the Seller
  Escrow isn’t just for buyers. It also reassures sellers that the buyer will meet their obligations. If the buyer defaults, the seller can claim against the account.

• Risk Management
  Escrow helps manage potential risks such as tax disputes or pending legal matters. By setting aside funds, both sides have a safety net to cover future claims without derailing the deal.

• Third-Party Oversight
  Escrow accounts are managed by neutral third parties (banks or law firms) who hold the funds securely and release them only according to the agreed terms.

In short, an escrow account creates trust. It gives buyers confidence, sellers peace of mind, and both sides a way to navigate risks without jeopardizing the transaction.

Download PDF

In Mergers & Acquisitions (M&A), a roll-over occurs when shareholders of the target company keep part of their ownership by exchanging it for equity in the new entity formed after the acquisition. In other words, instead of receiving only cash at closing, some of the seller’s ownership “rolls over” into the buyer’s structure—making them part-owners of the combined business.

How It Works:

• Shareholders in the target company exchange a portion of their equity for shares in the new entity.

• The result: they continue as shareholders, now in the combined or acquiring company.

Why Roll Overs Are Used:

• Management Incentives – Gives existing management and key employees a stake in the new entity, motivating them to stay and contribute to long-term success.

• Bridging Valuation Gaps – If a buyer won’t meet the seller’s full asking price, a roll-over allows the seller to accept a lower upfront payment while still participating in future upside.

• Alignment of Interests – Ensures both buyer and seller share in the risks and rewards of the new business.

Key Takeaway:
Roll-overs are a valuable tool in M&A, aligning interests and helping deals move forward. However, the specifics depend on the structure of the deal and the objectives of both parties.

Download PDF