In the U.S., most transactions involving the purchase of an Amazon FBA business involve the purchase of the business’ assets as opposed to the entirety of the business. These transactions are known as asset purchase deals and are effectuated through an asset purchase agreement (APA).
The APA is the main contract entered into between an Amazon store owner (the seller) and the purchaser of all of the relevant assets of the seller’s Amazon FBA business. The APA sets out what is being sold, the details of the sale process, and the obligations of the parties. Among its central terms, it sets forth the specific assets being purchased — such as inventory, equipment, contracts, goodwill, or stock — the purchase price, and the terms of payment.
In an asset acquisition, the buyer purchases specific assets and liabilities of the seller’s FBA business. The APA will list both the assets and liabilities being purchased and those not being purchased. This is significantly different than a stock purchase agreement (also known as a share deal), whereby the purchaser acquires all of a seller’s ownership interest in the entire FBA business, which is all of the business’ assets and liabilities. After an asset purchase deal closes, the buyer and seller maintain their respective corporate structures and the seller retains those assets and liabilities not purchased by the buyer. The key point of an APA is that both seller and buyer have the opportunity to include or exclude specific assets and liabilities from the transaction.
Often Amazon aggregators prefer asset deals because they can choose the assets to purchase without assuming any other known or unknown liabilities that would be ordinarily, and automatically, included in a share deal. The benefits of an asset deal from the perspective of aggregators include:
On the other hand, this may be a less favored choice by the seller since:
On occasion, aggregators are willing to accommodate a seller’s request to structure the acquisition as a share deal. This could be because after the transaction closes, one or more of the seller’s principals will be employed by the aggregator and the aggregator may be interested in giving the seller a more tax-efficient transaction in the spirit of a good post-transaction relationship. An aggregator may also prefer a share purchase in order to avoid any risks of inadvertently failing to purchase assets that are essential to the business being purchased or triggering the termination of the FBA business’ key relationships, such as with suppliers and key personnel. These risks are significantly limited in stock acquisitions where the purchaser acquires all of the target company’s assets, rights, and liabilities.
Yet, the sale of an FBA business through a share purchase often comes with a downside for the business owner. Because the purchaser is acquiring unwanted liabilities and losing favorable tax treatment, the purchaser is likely to pay less for a business acquired through a share purchase as opposed to a transaction structured as an asset purchase. In addition, because the purchaser acquires all of the seller’s known and unknown liabilities in a share deal, the due diligence for the transaction is likely to be longer and more expensive.
Contributed by Mark J. Rosenberg and Marco Giovine. Mark is an intellectual property attorney at Tarter Krinsky & Drogin LLP in New York. Mark has extensive experience assisting Amazon sellers and aggregators in acquiring and protecting intellectual property rights and resolving IP disputes. He can be reached at firstname.lastname@example.org
Marco Giovine is a business attorney at Tarter Krinsky & Drogin LLP in Los Angeles. Marco has significant experience in M&A transactions and has assisted Amazon FBA sellers in both share and asset deals. He can be reached at email@example.com.