How to Navigate the Final M&A Purchase Agreement

M&A purchase agreements are lengthy, detailed documents that can make your eyes bleed if you don’t know how to read one properly. Seriously. They’re dreadful.

Knowing how to read a purchase agreement is as important as what’s in the purchase agreement. It’s a two-step process:

  1. Review the document to make sure it accurately represents the main (and major) facets of the deal.

  2. Take a deeper dive into the minutiae of the document.

    For that in-depth review, you may want to rely on your attorney.

Defer to your lawyer for matters concerning legal issues. Most purchase agreements contain legal boilerplate that doesn’t differ much from one document to the next. You need to pay attention to this legalese, of course, but leave it to your lawyer to deal with it.

When first reviewing the document, deal-makers should focus on the key, very specific areas in the agreement. Because you’ve already negotiated these aspects, you’re making sure the agreement conforms to those negotiations. These main points are

  • Purchase price: This point includes any conditions to the Seller getting the full purchase price. Does the Seller have to jump through any hoops to get her dough — in other words, does the deal include contingent payments such as a note, earn-out, and so on?

  • What’s being sold: Confirm that the purchase agreement adheres to the deal type (stock or asset) that you’ve negotiated.

  • Escrow: The agreement lays out the amount of escrow, how long that money stays in escrow, and what the Seller needs to do (or not have happen) to obtain that money.

  • Cash at closing: This figure is the actual amount the Seller receives in cash after escrow, debt, advisor fees, and taxes come out of the purchase price.

  • Post-closing adjustments: Post-closing adjustments are usually relatively straightforward. However, the mechanisms for delivering a post-closing balance sheet (in order to calculate those adjustments), the ability to dispute, and what happens if Buyer fails to deliver necessary information to Seller after close can take multiple paragraphs or even pages, so be sure to review them carefully. If you’re a Seller, consult with your attorney!

That’s it! Those are the main issues you should be initially concerned with as you make your first review of the purchase agreement. These are the big issues, but they aren’t the only issues.

Some M&A deals involve transactions outside the scope the purchase agreement. If the Buyer is assuming some or all of the Seller’s debt, is also buying real estate the Seller owns, or is taking over leases from the Seller, those transactions involve other agreements. However, the purchase agreement itself may mention or refer to them.

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