The merger and acquisition process (M&A) is a complex operation in which a thorough analysis plays a key role – the so-called due diligence process. However, it is worth knowing what to focus on most. In this article, we will take a look at what to pay particular attention to when preparing an M&A SPA – from the key elements of the contract, through the legal protections of the parties, to the conditions for closing the transaction and the so-called conditions precedent.
- Key components – what should be included in a solid M&A SPA?
- Legal protections – how to protect the interests of the buyer and seller?
- Closing conditions and conditions precedent – when does the transaction close?
In practice, well-conducted due diligence significantly influences the shape and effectiveness of the final sale and purchase agreement (SPA). Read on to find out more.
Key components – what should be included in a solid M&A SPA?
A solid M&A SPA agreement should include legally binding provisions regarding payment terms, settlement mechanisms, and conditions for obtaining regulatory approvals. Detailed clauses regarding representations and warranties of the parties, as well as closing conditions are also important.
A well-constructed agreement minimizes risks and protects the interests of both the buyer and the seller. You can find more about the key elements of the transaction at https://acquinoxadvisors.com/ and other reliable sources of information.
Legal protections – how to protect the interests of the buyer and seller?
In order to effectively protect the interests of the buyer and seller in an M&A SPA agreement, it is crucial to match the provisions to the specific legal landscape and the nature of the transaction – regardless of whether it concerns the acquisition of shares or asset sale. The entire process involves careful preparation of clauses regarding the parties' liability, limitations, guarantees and dispute resolution mechanisms.
Another essential element is to conduct a thorough diligence exercise in advance, which allows for the identification of potential risks and their appropriate protection. For additional financial protection, an escrow account is often used, which guarantees the settlement of the transaction only after meeting certain conditions.
Closing conditions and conditions precedent – when does the transaction close?
The transaction within the M&A SPA is formally closed upon fulfillment of the so-called closing conditions and conditions precedent, which are previously specified in the purchase agreement. These may include, among others, obtaining regulatory approvals, lack of undisclosed liabilities or confirmation of the compliance of the seller's statements with the actual state of seller's knowledge.
Failure to fulfill these conditions may even result in withdrawal from the agreement and imposition of a termination fee. Therefore, analysis of these provisions provides valuable insights on the risks and responsibilities of each party.
