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Functions of the Acquisition Agreement

30 Aug Functions of the Acquisition Agreement

In my experience, consummating the deal is highly binary in nature. That is, it either goes very smoothly or it becomes costly, time-consuming and altogether painful. The latter description unfortunately matches better with a larger portion of done deals. Consequently, the importance of your Sale and Purchase Agreement cannot be overemphasized or downplayed.

First and foremost, the purpose of any sale and purchase agreement (often referred to as your acquisition agreement) is to set for the financial terms of the transaction itself. It also provides obligations and legal rights given to ALL the parties involved in the transaction (often we forget there can be other important individuals and entities named that don’t necessarily fall in the “buyer” or “seller” category). Here are some of the functions of your Acquisition Agreement from the perspective of both buyers and sellers.

Acquisition Agreement Inclusions for Buyers

  • Buyer receives a detailed description of the business and its assets which are to be purchased.
  • Remedies are given to the buyer where the description in the Sale and Purchase Agreement may prove materially inaccurate when Due Diligence eventually takes place.
  • The Agreement enumerates the risks associated with the purchase of the business including

Acquisition Agreement Inclusions for Buyers

  • The seller receives detailed information in the Acquisition Agreement regarding deal terms and particularly the deal structure (stock vs. cash, earn-out provisions, subsidiary purchases, asset splits etc.)
  • Detailed provisions regarding divestiture of specific assets–which can sometimes be harry–are also laid forth.
  • Payout terms and processes including wire transfer and routing number information so all parties can be paid when the deal is complete.

Other Inclusions for Both Parties 

  • Fiduciary issues and duties
  • Outlined financial data and info (particularly needed if asset purchases change the material nature of the business)
  • Employee matters including compensation, retirement plans and health plans may be included in the purchase agreement.

The negotiation process is often made more difficult by all the legal jargon included in such agreements. Such inclusions are meant to protect at least one party in the transaction for one reason or another, but they can often prove effective speed bumps to an eventual transaction completion. However, speed bumps are okay as long as they help to overcome potential deal-implosions and provide a path to eventual agreement between both buyer and seller.

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Nate Nead
Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.
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