Asset Purchase Agreements and Leasing
Instead of waiting for a month to go by, I'm going to try to post more regularly and in smaller chunks. That way, the info is more fresh and more comprehensible.
The general topic of this post is finance, and the two lessons regarding asset purchase agreements and leasing come from the entrepreneurial finance class I'm taking this quarter.
The material can at times appear dry, but I've enjoyed digging deep into the actual details and semantics behind real world business deals and operations, and this week I've learned a bit about how small businesses are purchased in the real world and some additional reasons behind why companies lease equipment that I would not have considered otherwise.
Asset Purchase Agreements: Small Business M&A
We had the pleasure of hearing a guest speaker in our class who came from the car dealership industry. He had purchased and developed several profitable dealerships around California and was giving us a lot of the inside "scoop" on how the deals really got done.
The first and most major new point that I took away was that small business balance sheets are mostly all "fiction" and not to be trusted. When buying a small business, the purchaser should really just buy the assets through an asset purchase agreement and not the actual company entity (stock). This will allow the purchaser to focus on the tangible, (more) easily appraisable values of the assets and not worry about the liabilities or any hidden cans of worms that can spring open from the purchased business in years to come. I never knew asset purchases were a possibility; I thought it was all just whole company purchases, so that was neat to learn.
I always thought that companies leased equipment when they don't need to use it for too long, are strapped for cash, or when the equipment can quickly become obsolete. I learned through a case analysis of a lease versus buy decision that there are many additional conditions when companies would prefer to lease as opposed to buy assets:
10/26/2010 09:07:36 am
The principles you outline apply to real estate, too. Makes for a helpful analogue for thinking about those decisions...what terms work better for renting housing vs buying?
10/26/2010 10:34:45 am
For sure. Real estate is often even more uncertain because the market is a lot less efficient and no two assets are exactly the same.
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