M&A Deals

Purchase and Sale Agreement

A Purchase and Sale Agreement is the contract that documents all of the terms agreed upon between the buyer and the seller in an M&A transaction. Sometimes, this document is referred to as the Definitive Agreement. In M&A deals, this is THE document as it controls the actual closing and any open or unresolved issues part-time.

A purchase and sale agreement can take the form of a merger agreement, tender offer document, or a stock or asset purchase agreement. All of these forms of purchase and sale agreements contain a number of important clauses and terms relating to the transaction. Therefore, it’s important for both the buyer and seller to have an experienced lawyer and a good M&A team to make sure the agreement is fair for both parties. Obviously, some of the terms are more important than others.

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There are several key sections of a purchase and sale agreement including the following: valuation/consideration, execution provisions, representations and warranties, covenants, conditions to closing, termination provision, break-up fees, etc.

• Execution provisions detail the way in which the deal is structured and the form of consideration. For example, an asset purchase and an all cash consideration.

• Representations and warranties outline exactly what is being sold and that the seller is delivering a clean title which is proof of ownership.

• Covenants are the agreements made between the buyer and seller. For example, a seller could be required by the buyer to keep certain employees.

• Conditions to closing are conditions that must be met such as regulatory approval prior to the closing of the transaction.

• Termination provisions are conditions in which the transaction could be terminated. For example, if the buyer cannot finance the acquisition.

• Break-up fees are the fees that must be paid in the event that one party backs out of the transaction.

These are only some of the many topics covered in a purchase and sale agreement. These agreements are comprehensive documents that are legally binding to all parties involved in the transaction. An experienced M&A advisor knows, from experience, when and where to compromise on certain issues. Furthermore, a good M&A advisor will work closely with their client's lawyer to make sure that whether the client is on the buy-side or the sell-side that they receive a fair document for closing.