After the Letter of Intent is signed and further M&A deal negotiations have begun, the next document for the business seller to draw up is the M&A purchase agreement. This document outlines all of the deal’s terms and acts as a final contract.
Unlike previous documents like the LOI and IOI, the purchase agreement is legally binding. Therefore, the seller should work heavily with their attorney in writing this document in order to ensure that all provisions are legally acceptable and to avoid being slighted by ambiguous wording. However, even with the attorney writing the document, the seller should still remain deeply involved with its process so that they can oversee the specifications and determine if all stipulations are within the seller’s best interest.
M&A Purchase Agreement
The following is a list of some of the most vital provisions in the purchase agreement. Note that since every deal is unique, one may add different points and sub-categories. Speak with an M&A intermediary for more details on what should and should not be included in one’s specific purchase agreement.
- Definitions: All capitalized terms throughout the agreement should be defined. Be detailed, since some definitions are interpretations and it is important to establish the meaning of these words for future reference.
- Representations and Warranties: Both the buyer and the seller need to disclose material information about the deal. The seller will include a list of assets that the buyer would acquire upon the close. Should any of these representations be found to be untrue, then one is subject to indemnity and the deal may be terminated.
- Indemnifications: Both parties must assume responsibility should something go wrong that negatively affects the other party. Determine in which instances the buyer and seller may be held accountable, and when they are not liable.
- Price: The purchase agreement is the document that finalizes the sale price for the business. This should include an exact dollar amount along with the specifications on how and when the seller will be paid.
- Closing: Include the conditions that must be met (including dates and regulatory approvals) in order for both parties to close on the deal.
- Post-Closing Adjustments: This is a list of all of the steps that are required after the purchase agreement has been signed, including earn-outs, permit transfers, etc. A date for completion of these actions is also necessary.
Make sure to go over the finalized purchase agreement with both the lawyer and the M&A intermediary to ensure that all information is clear-cut.
If would like to speak with an M&A intermediary about drawing up a purchase agreement for your business, please contact George & Company. We are well-versed in the sale and appraisal of mid-market businesses.