• Buying Stock Versus Buying Assets

    Insider noticed  Lamar bought stock when it purchased certain Fairway Outdoor assets in December. Sellers like to sell stock rather than assets because they get better tax treatment and the transaction is easier.   Buying stock is OK for a big public out of home company but Insider recommends against small out of home companies buying stock as part of an out of home acquisition.

    Always buy assets.  Buying assets has two advantages versus buying stock:

     You insulate yourself from undisclosed liabilities. If you buy stock you step into the shoes of the seller and take over the following liabilities whether or not they’ve been disclosed to you:

    • lawsuits
    • unpaid bills to vendors
    • unpaid leases
    • taxes
    • bad contracts and leases.  If you buy assets you can choose what contracts and leases you wish to assume and what contracts and leases you wish to reject.

    You pay lower income taxes because you can amortize the full price of the assets you buy. If you buy stock you step into the seller’s basis with respect to the company’s plant. If you buy stock in a company with a fully depreciated plant your will be paying much higher income taxes than if you buy assets.  This may not be a problem if you are growing but if you are a mature company with a depreciated plant and low future capital expenditures it can be an issue.

    If a seller insists on an equity transaction then ask for a substantial holdback (10-20% of the purchase price) which can be offset against undisclosed liabilities.

     


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