A Guide to M&A Purchase Agreements | Hilton Smythe

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A Guide to Merger and Acquisitions Purchase Agreements

One crucial aspect of an M&A deal is the purchase agreement, which, once signed, finalises your deal. Here’s what you need to do about these documents.

M&A deals are among the fastest ways for small businesses to become large businesses and large businesses to become multinational giants; but the process of finalising one of these deals can take months.

With H1 2023 seeing UK M&A activity decrease in line with trends from the last few years, fewer businesses are leading aggressive expansion campaigns. However, opportunities for ambitious managing directors remain.


One crucial aspect of any deal is the purchase agreement, which, once signed, finalises your deal. Here’s what you need to do about these documents.

Purchasing agreements represent the last significant step toward closing out your deal. Yet most businesses never reach this stage, with up to 90% of M&A deals falling through before this point.

These are usually signed before the final closing. In other words, possession of a business and its assets doesn’t change until the final transfer of stocks or assets. Some of these agreements will also include contingencies, such as if key third parties, like lenders, back out at the last moment.

Also, purchasing agreements include a deadline for completing the deal. These may be accompanied by an in-depth timeline with steps to provide a roadmap for reaching this deadline.

Unlike a Letter of Intent (LOI), purchasing agreements are legally binding, meaning that you’re committed to closing the sale if you sign one. Breaching the terms of the agreement can result in legal ramifications, including arbitration, lawsuits and financial penalties.

It underlines the importance of fully understanding the clauses contained within the purchasing agreement and what they mean for both parties. This is why enlisting a solicitor is crucial at this stage.

Every deal is unique, meaning every M&A purchase agreement will differ. With companies spending $2 trillion globally every year, it’s vital that what’s in your purchasing agreement represents the intricacies of your deal.

However, every purchasing agreement will have some similarities. Here’s what you can expect to find in a UK purchasing agreement:

Terms – A description of the main commercial terms. This will include what the deal consists of, the structure, the identity of both the buyer and the seller, the sale price and the obligations of each party to see the sale through to its final conclusion.

Buyer Protections – Several protections will be contained within the purchasing agreement. Additionally, there will be pieces of key information about the business being sold.

Timetable – The final sale process will be outlined within this agreement. It will also include a timeline for what needs to happen and when it needs to happen.

Confidentiality – Practically all purchasing agreements will include a confidentiality provision, preventing details of the transaction from being revealed. This may be temporary, but it can also be a permanent confidentiality clause.

Conditions – Conditions relating to the same. For example, your purchasing agreement may contain a consent to carry on the business. Likewise, there may be conditions relating to the buyer being able to obtain licensing approval.

Although the various clauses create legal obligations, you are not out of the woods yet. Certain conditions may mean the deal still falls through at the eleventh hour.

M&A deals are never truly completed until ownership has been transferred.

Purchase agreements take several weeks to formulate as each party goes back and forth until both sides are happy. As for length, these are detailed documents, which are often quite lengthy, hence why legal professionals are necessary to create them.

It’s not uncommon for purchase agreements to range from as few as 30 pages to as many as 100. Typically, M&A transactions with larger deal values will mean more detail due to the extra legal protections involved.

However, some transactions may require extra detail due to the nature of the assets involved. For example, if a High Street retailer is being acquired, there may be a separate one-page summary for every property.

Overall, a purchase agreement will be as long as it needs to be.

Purchase agreements come into play after due diligence has been completed. Drafting a purchase agreement assumes that the buyer is happy with the results of their due diligence.

In nearly all cases, the buyer prepares the draft purchase agreement. This is because they are usually the most concerned with the protections against liabilities post-sale.

The seller’s solicitors will occasionally prepare the first draft of the purchase agreement, but this only occurs if a company is being sold at auction.

What can you expect to find in your purchasing agreement?

These agreements are merely long lists of clauses covering everything from definitions to confidentiality. Let’s discuss the primary clauses you will come across in your M&A purchase agreements.

Definitions – Any purchase agreement will include a section containing key definitions of essential terms. This ensures that there’s no room for misinterpretation and disagreements.

Price – This clause will define the purchase price and other pertinent numbers, such as down payments, seller financing, third-party financing and more.

Inventory – This section will discuss the inventory included in the sale. It will also provide any adjustments to the purchase price based on any differences in inventory between signing the purchase agreement and closing the deal.

Contingencies – Contingencies will also be included. Most buyer contingencies will relate to things like lease transfers, licensing and financing.

Closing Costs – This area of the purchase agreement details who is responsible for closing costs. Most M&A deals will split these costs equally, but this isn’t always true.

Representations and Warranties – To sum up this section briefly, it provides the buyer with guarantees that all representations made are accurate and the rights of the buyer to take legal action if this is not the case. Buyers should spend considerable time on these clauses because they can flush out potential problems.

Training – Some M&A deals may include training agreements for new employees and executives. These clauses should outline the length of the training agreement, how many hours are included, and on what terms. In the past, buyers have sued sellers who failed to train them adequately.

Confidentiality – Confidentiality clauses are sometimes included as part of the purchase agreement. This often occurs when a buyer in a private M&A transaction wishes to keep the purchase price out of the public eye forever. However, different rules apply to public M&A transactions regarding reporting.

Default – The default section discusses what happens if the agreement is cancelled and under what terms. This is where you’ll detail any break-up fees, usually around 3% of the deal value, or scenarios whereby both sides can depart from the agreement without consequence.

Miscellaneous Legal – This section will include information relating to the legal side, such as attorney fees, mechanisms for mediation and arbitration, governing laws, risk of loss, and other aspects applying to all legal agreements.

As always, it’s vital to take the time to inspect every clause within your purchasing agreement. If you sign the agreement and close the deal, you have little recourse if you forget something later. In many cases, the principle of caveat emptor, or let the buyer beware, may apply.

Purchasing agreements are your legal obligation to buy or sell. If you have reached this stage in your M&A transaction, you will have completed your due diligence and be prepared to buy.

Key to any smooth M&A transaction is hashing out the purchasing agreement that makes sense for both sides. To aid you in your purchase agreements, work with M&A consultants with the know-how and experience to represent and advise on your interests.At Hilton Smythe, our team has decades of collective experience in drafting and providing tailored advice on negotiating the best possible purchase agreements for our clients. To learn more about what our consultants can do for you, speak to the team now.

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