The purchase agreement is the final agreement between the buyer and the seller in the M&A process. Although this contract varies significantly from company to company, the most important and essential aspects are:
- Preamble
- A brief introduction presenting the circumstances and the parties involved in the transaction.
- Definitions
- All terms within the SPA are carefully defined to avoid future legal disputes.
- Sold Entity
- This section answers what exactly is being purchased, such as whether it is a sale of shares or assets.
- Purchase Price and Adjustments
- The final agreed price (enterprise value) for the company or its assets being purchased.
- Additionally, adjustments from the enterprise value to the equity value (equity bridge) are defined and stipulated in the negotiations and the SPA.
- Representations and Warranties
- Assurances from the seller to the buyer, usually in the form of statements asserting certain information as true, with indemnification provided in case these statements prove to be false.
Once both parties agree on the SPA, the price at which the company is valued and the price the buyer will pay are established. Additionally, warranties are provided, offering indemnification if defined facts and assumptions turn out to be incorrect.