Sections in the M&A Purchase Agreement - dummies

Sections in the M&A Purchase Agreement

By Bill Snow

The purchase agreement lays down the terms of an M&A agreement in a binding document. Before this document is finalized, it is important to make sure that it is correct and that you know exactly what the terms of the agreement are.

What to verify in the M&A purchase agreement

You could call this part, which is usually toward the beginning of the document, the “whereas” section because most paragraphs start with the word whereas. This preamble sets the tone for the rest of the document. Here are a few items to verify:

  • Legal names and addresses of the entities (Buyer and Seller) are correct.

  • Deal is either clearly defined as an asset sale or a stock sale.

    If it’s a stock sale, make sure the share information (number of shares issued, outstanding, and authorized) is correct.

  • Definition of the business is accurate.

  • Intents of Buyer and Seller are clearly stated — Buyer desires to buy, and Seller desires to sell.

The terms of the sale in the M&A purchase agreement

The purchase agreement also very clearly defines what is being sold: the company’s stock or the company’s assets. Sellers usually prefer stock deals because of tax reasons. Buyers typically prefer to buy assets because assets can help reduce the worries of successor liabilities, or problems caused by the Seller (such as wrongful termination lawsuits) that may pop up after the deal closes.

The agreement should also specify the purchase price, the structure of that price (cash, notes, stock, earn-out, and so on), and the amount that goes into escrow.

This section also details the anticipated closing date and location. Usually, the closing occurs in the lawyers’ offices. In the old days, the closing took place in a specific office, but because of today’s technology, most closings are virtual closings conducted via e-mail, fax, and phone.