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What Is a Trade Sale?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 12 September 2016
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A trade sale is a type of business transaction that involves the sale of one business to another business. The acquiring company, known as the trade buyer, works with the acquired company or the trade seller to make sure that all the terms of the trade sale go smoothly. Once the sale is completed, the new owners have full control of all assets and can make use of those assets in any way they choose.

The particulars of a trade sale normally involve the systematic disposal of the assets and liabilities held by the business that is being sold. This effort will normally focus on any assets that the acquiring company does not wish to continue holding, making it possible to dispose of those assets and use the proceeds to settle any liabilities that the new owners do not wish to assume. For example, as part of the acquisition process, the seller may be required by the buyer to sell certain assets and use the proceeds to settle an open line of credit or even a pension plan that the new owner does not wish to assume as part of the acquisition.

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The use of a trade sale is often part of an exit strategy when it comes to the sale of assets that are part of venture capital investments. In this scenario, a core group of venture capitalists may purchase a number of small firms as a means of creating a single large corporation that eventually attracts the attention of a major player within that industry. Throughout the process of the purchase of the smaller companies, the investors in the venture may have reorganized assets, possibly selling some off as part of the integration of all the entities into one common operation. When an offer is made by a major player to purchase the integrated company, the venture capitalists can sell off the investment, generating a considerable amount of profit for each of the investors.

Even small businesses may utilize a trade sale as a means of increasing their presence within a local market. Here, one local bakery may choose to sell out to a competitor, assuming that the purchase offer was attractive enough to allow the owner to generate a considerable amount of income. The trade buyer gets the benefit of all the assets of the former competitor, including a good share of the seller’s client base and possibly some equipment that will allow the seller to expand and generate higher business volume, even as competition in the local market is minimized.

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