M&A Factoid

Asset Purchase Agreement

In an M&A transaction, the asset purchase agreement or “APA” is a definitive agreement between the buyer and seller that identifies, among other things, the assets (and usually selected liabilities) being acquired from the seller and the total consideration paid for these assets. The assets and selected liabilities being acquired are detailed in a schedule in the APA. Similarly, any assets excluded from the purchase are also itemized in a separate schedule. The APA will include many important provisions such as representations and warranties, restrictive covenants, financing, solicitation, etc. Unlike a Letter of Intent, the APA is binding on both parties and clearly defines the final deal terms of the transaction. It is important to note that in an APA no shares of the company are being acquired - only the assets (and selected liabilities) of the company for sale are purchased by the buyer. Therefore, the buyer does not acquire any of the seller’s other liabilities, including past obligations that might not even be known on the day of closing.

Stock Purchase Agreement

In an M&A transaction, the stock purchase agreement or “SPA” is a definitive agreement between the buyer and seller that finalizes all terms and conditions related to the acquisition of the seller’s shares. In a SPA, unlike an asset purchase agreement, title to both the seller’s assets and all liabilities are conveyed as a result of the acquisition of the seller’s shares. It is extremely important for the seller to review the representations and warranties section of the SPA to ensure there are no statements that are believed to be untrue. False representations and warranties could result in legal action even after the deal is closed.