We are deadlocked with a buyer who insists on an asset purchase to get a tax step-up, while we want a stock sale to avoid double taxation and high capital gains. How do we break this impasse without walking away from a good valuation?

Question

Tyler Smith · Accepted Answer

This is a common deadlock in mid-market transactions. The buyer wants an asset sale to write off the purchase price through depreciation, while you want a stock sale to maximize your net after-tax proceeds. To resolve this, you need to calculate the exact tax differential and use it as a negotiation lever.

Request your tax advisor run a detailed analysis comparing the net proceeds of both structures. Once you have the exact dollar amount of your tax disadvantage under an asset sale, propose a stock sale with an IRC Section 338(h)(10) election. This election allows the transaction to be treated as a stock sale for legal purposes but as an asset sale for tax purposes.

If that is not viable, negotiate a gross-up clause. This means the buyer agrees to increase the purchase price by the exact amount of your additional tax liability, ensuring your net cash at close remains identical to what you would receive in a stock sale. This operational compromise keeps the deal moving forward. By framing this as a simple mathematical adjustment rather than an emotional battle, you maintain deal momentum and protect your hard-earned wealth.