What is the difference between the asset and equity transaction structure are:
Asset Sale (Asset Value)
Includes ONLY inventory/supplies, fixed assets and all intangible assets. Excludes all liquid financial assets and all liabilities. Buyer operates from newly formed legal entity.
Equity Sale (Equity Value)
Includes the assets listed above PLUS liquid financial assets LESS all liabilities (ST/LT). Involves the full transfer of the legal entity including all account balances and current tax attributes.
Naturally, the “value” associated with these two distinct transactions can be substantially different. In practical terms:
Asset Sale | Equity Sale |
The seller keeps the cash and receivables but delivers the business free and clear of all debt | The buyer is acquiring ALL of the assets and liabilities, on and off the balance sheet. |
In the “real world”, there are many variations on these basic structures, e.g. an asset sale might include accounts receivable or an equity sale might exclude long term debt, etc. The values provided in this report are stated in terms of the baseline case as defined above. They are both “fair market value on a going concern basis” estimates, but one reflects the asset sale and one reflects the equity sale.
Enterprise Value
In middle-market transactions, it is also helpful to distinguish between “equity value” and “enterprise value”. Enterprise value is a reflection of the firm’s value as a functioning entity and it is helpful in that it facilitates the comparison of companies with varying levels of debt.
See White Paper titled “Four Measures of Value”