The Sale & Purchase Agreement (SPA) is one to familiarize yourself with before selling
When you sell your business one day, the catch-all legal document that will capture all key aspects of what you and the acquirer have agreed upon will be contained within the Sale & Purchase Agreement or SPA. There will be various types of legal documents that your lawyer and the acquirer’s lawyer will be drawing up but none more important than the SPA.
For a typical transaction, the SPA can run 20+ pages on smaller transactions and grow to over 100 pages for larger deals especially when including all the related schedules that come along with the document. This alone tells you that it will contain a great level of detail about the deal surrounding the sale of your company. There will be many points that get negotiated between you and the buyer besides just the purchase price. There will be many key points to be negotiated and you don’t want these coming as a surprise. Surprises during an exit event mean stress for the seller and can impact your ability to achieve your euphoric exit. So here are just some of the key items you’ll be negotiating with the acquirer for the SPA:
- Will there be any funds held back on the day of the transaction successfully closing and if so, how much and for how long?
- What types of issues can the acquirer come to you post transaction closing and claw money back from you?
- What types of issues will the acquirer ask you to represent your specific knowledge of to eliminate their exposure post transaction closing? e.: your knowledge of potential future loss of a customer or contract, a possible product warranty issue, a possible employee or customer litigation, a possible environmental issue with a facility.
- How will post-closing adjustments be calculated specific to working capital? There will be estimates done for the day the transaction successfully closes with accounts receivables and payables and inventory but there will be a “true-up” months later, how will this be done?
- What are the “conditions to closing” that the acquirer will require you to provide? This will be a listing of all the conditions the acquirer must have you comply with such as ensuring key customer approvals will rollover to them, rollover of key contracts, transferability of facility or equipment leases, employment agreements in place with the seller and/or key employees and several others they may require.
- What indemnifications will the acquirer demand from you and visa versa post transaction?
Too often sellers are surprised by the content of a SPA and they find themselves having to rush their thinking and decisions which only serves to raise their stress levels. Sit with an exit optimization professional and use time as a friend to understand the SPA content and remove the unnecessary surprises that often arise during the sale process.
