It is of prior importance to choose a transaction method when planning an acquisition. The choice of a share deal vs. an asset deal may have great implication on the achievement of transaction purpose, tax exposure and etc.
With respect to the acquisition of health food enterprises, considering the fair amount of licenses involved in the health food enterprises and the difficulty and lengthy application procedures for such licenses (especially the registration certificate of health food and health food production license as mentioned above), how to keep the existing licenses of the target health food enterprise to the maximum extent is one of the key elements when determining transaction method. Below is a brief analysis and comparison between a share deal and an asset deal in the acquisition of a health food enterprise:
Under a share deal, the target company will retain all the existing assets in most cases, while the shareholder of the target company will be directly or indirectly changed. Under an asset deal, the acquirer will buy out all or substantial assets of the target company to achieve new production line, operational capabilities, new products, customer groups, specific intellectual property and etc. The acquirer will establish a new company and make capital contribution to the new company with the acquired assets. Under asset acquisition, the newly-established company may still carry out similar or even the same business at the address of the original target company, while the newly-established company is completely independent of the original target company.
As mentioned above, health food related licenses are extremely valuable for health food enterprises. Whether such valuable licenses can be kept after the completion of the acquisition is the top priority for the acquirer. Under an asset deal, considering that the newly-established company is completely independent of the original target company, all the existing licenses held by the original target company can hardly be transferred to the new company, and the new company needs to re-apply for relevant licenses so as to continue carrying out the intended health food businesses. Therefore, it is more practicable to acquire a health food enterprise through a share deal rather than an asset deal, considering the fact that the health food related licenses will be retained under a share deal.
In summary, health food is a special industrial considering that the flow of health food circulation is strictly regulated and the application process for licenses related to health food is time-consuming and complex. Therefore, when acquiring a health food enterprise, share deal is recommended to keep the relevant licenses to the maximum extent.