We are trying to understand the actual cash difference between the strategic buyer's stock purchase offer at a six multiple and a private equity buyer's asset purchase offer at a seven multiple with a working capital peg. How do we run a comparative analysis that balances the tax hit of the asset sale against the higher multiple?

Question

Tyler Smith · Accepted Answer

To compare these two offers accurately, you must look past the headline multiple and run a net proceeds analysis. A strategic stock sale at a six multiple might yield more cash in your pocket than a financial asset sale at a seven multiple once you account for taxes and working capital requirements.

In a stock sale, the transaction is generally treated as a capital gain, which is taxed at a lower rate. In an asset sale, the buyer buys individual assets, allowing them to step up the tax basis. However, this triggers depreciation recapture and ordinary income tax rates for you on items like equipment and intangible assets, which can significantly reduce your net proceeds.

Furthermore, you must evaluate the working capital peg. If the asset sale requires you to leave a high level of working capital in the business, including all your accounts receivable, you are effectively giving the buyer cash that you could have kept.

To analyze this properly, utilize the Business Integrity Review framework from Step by Step Exit. This helps you map out both the quantitative tax implications and the qualitative operational risks of each structure. Use your EOS V/TO to evaluate how each buyer type aligns with your long-term goals for your leadership team. If your team is staying, the strategic buyer might offer more synergy, while the financial buyer might require more operational involvement. Do not let a high headline multiple blind you to the actual cash left on the table after taxes and working capital adjustments.