From a tax perspective, which option is more favorable in a sale of assets within a Mergers and Acquisitions deal?

In a sale of assets during a Mergers and Acquisitions deal, the tax implications for both the buyer and the seller can significantly differ, often making the transaction more advantageous from the buyer's perspective.

When an asset sale occurs, the buyer typically benefits because they can step up the basis of the acquired assets to their fair market value. This allows the buyer to potentially depreciate the newly valued assets over time, leading to tax deductions that can reduce their taxable income in future years. Such benefits can be critical for buyers in reducing the overall tax burden associated with the acquisition.

On the seller's side, while they might realize a capital gain from the sale that could be more favorable compared to other types of income, they are subject to tax on the gain at the time of the sale. This might result in a higher immediate tax liability depending on the seller's tax situation and the character of the assets being sold.

Therefore, while both parties have their own interests, the buyer is often in a more favorable tax position in an asset sale scenario due to opportunities for future tax deductibility through depreciation, which does not apply to the seller in the same way. This difference plays a substantial role in the dynamics of negotiating M&A transactions.