sale and purchase agreement a sale and purchase agreement SPA is the main contract entered into by a p-fund and the existing owners of a Target company.
It governs the terms and conditions of The Envision transaction and the acquisition process the SPA reflects key findings from due diligence Target valuation deal pricing deal structuring and other commercial accounting and legal considerations negotiated between the P firm and the seller these documents are lengthy and usually range between 20 to 100 pages.
The two pivotal stages of an SPA are signing or execution.
When parties enter into an SPA and agree to satisfy certain pre-closing obligations.
and closing or completion when all terms and conditions of an SPA come into Force funding for the transaction is released and the PE fund formally acquires the target company.
Signing and closing may occur on the same date.
But there is typically a time lag between them for conditions administrative steps and funding requirements to be met.
This time lag can be as short as a few hours.
Or as long as multiple months.
While each transaction is unique most Spas follow a general format and include a set of common Provisions describing the responsibilities of the buyer and seller.
These agreements typically detail a sale and purchase of either a target's assets.
acid purchase agreement or its existing Equity shares share purchase agreement these common topics include details of the parties full details of the various parties to the agreement which will include company names addresses and legal details.
purchase and sale in this Clause of the spa a fund agrees to purchase an existing owners agree to sell either the assets or the equity interest in the target.
The purchase price of the transaction and the specific instruments used to fund the transaction are also detailed here.
The counterparties to the SPA may agree to a purchase price fixed at signing via a locked box mechanism.
Where the price is fixed on the most recent financial statements? Or a preliminary purchase price to be adjusted at closing via the completion accounts mechanism.
Where the price is adjusted based on financial statements as at date of completion of the deal? The purchase and sale clause also sets out the time and location for transaction closing and a long stop date by which time the transaction must close or parties to the SPA can effectively terminate the agreement. Finally this Clause would also include details on deferred payments such as the purchase price being paid in a number of deferred installments.
Contingent payments often held in escrow accounts, for example, when part of the purchase price is kept back until certain specific events or actions occur.
Or other forms of earnouts such as when a purchase price increases over time if certain earnings thresholds are reached.
representations and warranties repson warranties are statements of fact and promises that underpins specific elements of the transaction set out.
in the SPA It representation is a statement of fact that was influential in inducing a buyer or seller to enter into the SPA.
A warranty is a promise that a statement of fact is true reps and warranties are principally used to offer protection to a buyer in case a vendor statement of fact regarding the Target business proved to be false to allocate a portion of performance risk at the Target company to the seller and to provide an opportunity for a buyer to gain additional information on the Target by inducing the seller to declare all risk-related information and avoid having to pay damages later on the effects of a breach of reps and warranties and the remedies available to an aggrieved party very across jurisdiction, but can range from a party being entitled to terminate the SPA to monetary or specific performance damages.
