Glossary
The primary contract governing the sale and purchase of shares in a target company, setting out price, warranties, and completion mechanics.
Key Documents
The centrepiece of any acquisition is the share purchase agreement (SPA) or, for asset deals, an asset purchase agreement. The SPA sets out the price, payment mechanics (often completion accounts or a locked box structure), and the warranties and indemnities that allocate risk between buyer and seller. The disclosure letter qualifies the warranties by setting out known issues — if the seller fails to disclose a material fact, the buyer may have a warranty claim. Ancillary documents include tax covenants, transitional services agreements, and any restrictive covenants preventing the seller from competing post-completion.
Due Diligence
The investigation process where a buyer examines a target's legal, financial, tax, and commercial position before committing to a transaction.
Warranty
A contractual statement of fact by the seller about the target company — if untrue, the buyer may claim damages for the resulting loss.
Indemnity
A pound-for-pound reimbursement obligation for a specific identified risk, offering stronger protection than a warranty claim.
Completion Accounts
A price adjustment mechanism where the final purchase price is determined by accounts drawn up shortly after completion, reflecting the target's actual financial position.
Locked Box
An alternative pricing mechanism where the price is fixed by reference to a set of accounts at an agreed date before signing, with protections against value leakage.
Condition Precedent
A requirement that must be satisfied (e.g., regulatory approval) before the parties are obliged to complete the transaction.
Material Adverse Change (MAC)
A clause allowing a buyer to walk away if a significant negative event affects the target between signing and completion — heavily negotiated and rarely invoked.