Sale & Purchase Agreements

2 Part Course | Learn how to negotiate the contentious topics in SPAs

A towering skyline of two tall twin glass buildings looking up high at the sky

A one-day course presented over two-half days in a virtual class

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Download: Course Category Brochure | Course Outline

Part One

SPA structure & interpretation issues

The skeleton structure of the sale and purchase agreements (SPA): overview
Interpretation of contracts
- UK & common law vs Europe (civil law)
Case Review: Approach in England: Arnold v Britton
Case Review: Approach in Civil jurisdictions: the 'Haviltex' principles in the Lundiform judgement (Holland)
The spectrum of “endeavours/efforts” – Best vs Reasonable other variants
Dispute Resolution
Choice of law and jurisdiction clause
Title to the (sale) the shares
Full vs Limited title guarantee - ramifications
- UK/ Common law approach
- Position in civil law (e.g. Holland, Germany, France)

Calculating the price: The equity bridge (cash-free /debt-free)

Overview of the “Equity Bridge”
The cash-free - debt-free approach (the equity bridge M&A)
What does ‘cash-free/ debt-free’ mean in practice?
- Defining ‘Cash’ – review of contentious issues (e.g. trapped cash)
- Defining “Debt” – review of contentious issues (e.g. Leases, deferred revenue, capex)
Deriving the working capital Target or PEG
- What is “working capital”
- Setting the working capital Target or PEG
- What is the ‘right’ Target? – normalised, average, core, other? (buyer vs seller perspectives)
Practical tips on how to minimise disputes in the SPA re definitions of Cash, Debt and Working Capital
Other adjustments to the price – warranties & indemnity claims

Completion Accounts approach

Key milestones in the "Completion Accounts" process
What comprises the Completion Accounts
- No IFRS or GAAP definition of Completion Accounts
- What should the Completion Accounts comprise
What are the key issues in using Completion Accounts
- Form & content of the Completion Accounts
- The accounting conventions and definitions
- Using a “hierarchy” of accounts to clarify matters (sellers vs buyers’ approach)
- IFRS/GAAP 'override'
- Who is responsible for compiling the Completion Accounts
- Issues in split Exchange/Signing and Completion/Financial close
- Dealing with delays in setting the Completion Accounts
Main areas of dispute & how to avoid them
- Using the “Wrong” hierarchy of accounts
- Poor / inadequate definitions of cash, debt and working capital
- Ambiguous accounting policies
- Poor access for a seller post close
Tips on how to minimise/ eliminate potential for disputes
Case Review: Mehiel (Delaware)
Case Review: Shafi v Rutherford

Locked Box approach

Review Locked Box timeline and key milestones
Rationale of Locked Box – where and why it evolved
The ‘theoretical’ approach to Locked Box
Buyer risks & how to mitigate
- Leakage in the locked box period
- Deteriorating trade during the locked box period
- Adverse events in the locked box period
- Composition of the Locked Box balance sheet
Dealing with the ‘Leakage” issue
- Agree Permitted Leakage
- Agree which items of Permitted Leakage will impact the price & which ones will not
- “typical” items (ordinary course of business, payroll)
- Typical areas of disagreement – transactions costs, capex
Which 'Accounts" are used - management, audited other?
- The accounts are stale
- What policies were used to compile the Locked Box Accounts
- Practical solutions
Risks for the Seller (the value accrual)
- Original approach to value accrual
- Other market approaches – use of “ticker”
- How is “ticker” derived
Comparing Completion Accounts vs Locked box from buyer and seller perspectives
- Pros and cons of each approach
- Key considerations in deciding which approach is best

Part Two

Deals based on Net Asset Value (NAV)

Which sectors use NAV
Potential problem areas & risk mitigants
- Valuation of illiquid or complex financial instruments
- Overstated assets
- Understated liabilities
- Off balance sheet items
- Intangible valuation
- Inventory - what is 'cost' and WIP?
- Potential problem areas with Receivables
- Long-term contracts esp WIP

Representations & misrepresentations

Representations vs warranties vs indemnities
- What are ‘representations” & how do they differ from warranties
- Representations vs warranties – key differences
Dangers of ‘giving both Reps and Warranties
Representations & remedies under English / common law
Representations & remedies in Civil law
Excluding liability for (mis)representations –
- Use of “Entire Agreement” clauses – what do they cover
  - What about “implied’ terms
- Role of ‘non-reliance’ statement
- How effective is “exclusive remedies” carve-out
Problems with “Entire Agreement” clauses in civil jurisdictions
- How effective are they
- How can parties mitigate this risk
Duty to Negotiate in Good Faith (civil law vs English law)
- Where, why and how it matters

Warranties

Warranties in share purchase agreement
- Dual role of warranties
Warranties and interaction with the Disclosure process
Limitations
- Duty to mitigate losses (English & civil law)
- Remoteness exclusion
- Indirect or consequential damages – when are they recoverable?
- Best practices in drafting re indirect damages (buyer v seller)
- Civil law approach to mitigation, remoteness and indirect loss
  - Position varies in Europe
- Main warranties (what to look for)
  - The Accounts
  - Assets
  - Inventory
  - Material Contracts
  - ESG compliance
  - Compliance with all laws (sweeper clause)
    - Very broad areas of coverage (ESG, Employment/Labour laws, Data protection, Bribery/corruption, Tax, H&S)
    - Drafting considerations (materiality, knowledge & time qualifiers, jurisdictional scope)
  - Other warranties
- Interaction of the Tax Covenant with the Tax Warranties (UK)
- Calculating the measure for damages in Warranty claims
  - Difference in the market value of the shares with and without the breach
  - What is Market Value
- Case Review: review Cardamon Case
  - UK vs Civil law approach
  - Difference between different types of damages
- Case Review: ADT Case
- Who provides the warranties in share purchase agreements – problem areas & how to mitigate them
  - Issues with multiple sellers, limits on liability
  - Sales by “Shell’ companies
  - Private equity issues - managers (not owners)

Disclosure

General vs specific disclosure
The disclosure “standard” required to exclude liability
The disclosure “standard” impact post Infiniteland case
Risks in not specifying a disclosure standard q.v. Levison
Current market practice “Fair” or Fairly disclosed”
Position in civil law systems (varies) – drafting tips
How can the buyer react to “aggressive” disclosure
Impact of a failure to disclose – civil and criminal aspects

Indemnities

Purpose of & rationale for Indemnities
Indemnification as the exclusive remedy (carve-outs)
Main areas of Indemnity coverage
- Environmental
- Product liability
- Litigation (esp. IPR)
Potential problem areas with indemnities
Case Review: Padre Island Case
Case Review: “Eurus’ Case
Position in civil law (varies)
- Indemnities not considered a distinct legal concept separate from general damages
- Indemnities are often treated as a form of contractual damages or guarantee

Limitations on liability under the SPA

Financial caps on Sellers’ liability - is there a ‘market’ standard?
- Overall cap on liability – does it cover all claims
- differential caps for differing types of claims
- Dealing with deferred consideration
- Proportional limits for each seller (contribution agreements)
- De minimis caps for individual claims
- What happens if these exceed a high level?
- Tipping Basket vs Deductible basket – what’s the market?
Time limits (what do they apply to)
- Notice periods for bring claims
- Differing time periods for differing types of claims (e.g. tax, environment, capacity/title)
Onerous notification requirements
- Truncated time limits post ‘becoming aware’
- Bringing claims (what does ‘served’ mean?)
Buyer’s knowledge
- Matters ‘disclosed’ in the ‘disclosure bundle’ / data room
- Buyer’s “knowledge” – coverage (actual, constructive imputed?)
Case Review: “Eurocopy vs Infiniteland Cases
Sellers’ Knowledge (‘Awareness’ carve-outs)
- Rationale for carve-out
- What constitutes the seller’s “knowledge” – actual vs constructive vs imputed
- What is the seller’s optimum position
- How should buyers respond
- Sellers ‘deemed’ knowledge
- Seller obliged to make due and careful enquiry
Case Review: William Sindall case
Case Review: Triumph Controls case
- Other limits
- Provisions in the ‘Accounts’ - Case Review: Brim Holdings Case (Delaware)
- Recovery from other sources (insurance/ Third parties)
- Contingent liabilities
- Changes in Law
- Changes in Accounting policies post completion
- Acts by the buyer (post completion) or acts on buyer’s instructions
- Disregard post-Completion actions (by the buyer)
Case Review: Teoco case
Case Review: Zaygo case
Retentions and Escrow accounts
- Who gets the interest?
- What happens to the Retention/Escrow if a claim is pending at termination of the Retention/Escrow period
Warranty insurance –
- Buyer vs seller policies – key differences
- What can be covered and what is typically excluded
- Where and why it is useful of matters insured
- “Typical price and terms

Earn-outs – A Tool for Value Arbitrage

Anatomy of an earn-out
- Duration
  - Major considerations in deciding the duration
  - Examples across different sectors
- Choosing the benchmark or metric across different sectors
- Frequency of payouts
- Clawbacks?
- Structuring the consideration – what are the options
Issues for buyers to consider
Issues for sellers to consider
Key areas for negotiation & dispute
Dealing with early termination of the earn-out
Handling vendors who leave ”early”

Main Issues to consider are split Exchange & Completion

Right to Termination clause
- Conditions to Completion
- Matters between Exchange & Completion
- Role of “material”
- Impact on Warranties in share purchase agreements – repeat all, some or none at Completion?
MAC/MAE clauses
- What is a MAC (Material Adverse Change)
- Review WPP - Tempus
- Is there a ‘market’ approach
- Issues for the seller
- Issues for the buyer

Please be advised that there is some content overlap between this course & our 'Advanced Negotiation Issues in M&A' and 'Advanced Financial Issues in Acquisition Agreements' courses. If you are looking to book onto one or more of these courses, we would advise contacting us to discuss which combination of courses would be recommended.

Our trainer is a consultant, public speaker and author with expertise in private equity, debt advisory, restructuring and infrastructure. He is a Senior Advisor to KPMG Finland, a Senior Advisor to Reorg EMEA Covenants, the leading provider of information to the European High Yield community, and a Senior Consultant to Grant Thornton UK.

Training programmes are provided to a wide range of blue-chip clients in Europe, Africa, the Middle and Far East, North America and Australasia. In-house clients include banks (BNP Paribas, Société Générale, ING, Barclays Capital, Bank of China, RBS, SEB); lawyers (Baker & McKenzie, Skadden Arps, Sullivan & Cromwell, Cadwalader, Latham & Watkins, Weil, White & Case); advisory firms (Lazard, PWC, M&A International, KPMG, EY, Deloitte); PE firms (Cinven, Advent, Barings Asia, Waterland); corporates (Siemens, Airbus, Turkcell, Candy Crush, Gunvor, Statkraft) and governmental bodies (the UKLA, the EBRD, the ECGD, Omani Oil Corp.)

He qualified in South Africa both as a Chartered Accountant, with Deloitte and as a lawyer with Hofmeyr where he was involved in structuring several high-profile project financings including BMW 3 Series, Ford Sierra, GM, Sappi and Mondi.

When he moved to London and joined Lazard Brothers as a corporate finance executive he was involved in a wide range of public and private transactions. Subsequently, he joined Hoare Govett as an assistant director where he acted as an advisor to smaller listed companies and was involved in several syndicated Euro-Equity Initial Public Offerings.

In 1991 he joined ABN Amro’s cross-border M&A team before being transferred to MeesPierson Corporate Finance as a Director in Cross-Border M&A where he was also involved in a number of deals in Central Europe. During this time, he was a member of the EU-PHARE programme and advised the Estonian government on its privatisation programme.

He is the Programme Director at the City Business School, London, for Infrastructure Finance for the M. Sc. programme in Business Administration and Finance.

He is a member of the Institute of Chartered Accountants in England & Wales and the South African Institute of Chartered Accountants. He completed a BA and an LLB at the University of Natal and a B. Compt. (Hons) at UNISA.

Upon completion of this course, participants will be able to:

Analyse and structure complex SPA transactions, identifying key risk allocation mechanisms across both common law and civil law jurisdictions
Compare and contrast the approaches to contract interpretation in UK common law and civil law systems, particularly focusing on the 'Haviltex' principles
Evaluate and negotiate critical clauses in SPAs on representations and warranties from both common law and civil law perspectives, understanding their differing legal implications and enforcement mechanisms across jurisdictions
Analyse the application of indemnities in M&A transactions, including: first, their function and broad application in common law systems, secondly, their varied treatment in civil law jurisdictions (where they are generally not recognized as a distinct legal concept, thirdly, identify strategies for drafting effective indemnity clauses that are enforceable across different legal systems
Assess the implications of using Completion Accounts versus Locked Box mechanisms in different jurisdictions
Develop effective strategies for disclosure and navigate the varying standards required in the UK and civil law countries
Analyze the treatment of indirect and consequential damages across different legal systems and draft appropriate limitation clauses
Design comprehensive warranties that address emerging areas such as ESG compliance, data protection, and cybersecurity
Craft robust dispute resolution clauses that account for jurisdictional differences
Evaluate the use and effectiveness of entire agreement clauses in both common law and civil law contexts
Assess the impact of good faith obligations in contract negotiation and performance, particularly in civil law jurisdictions
Develop strategies for successful earn-out structures that are enforceable across different legal systems
Analyse the approach to MAC/MAE clauses in different jurisdictions and craft appropriate provisions for cross-border deals
Evaluate the use and limitations of warranty and indemnity insurance in international transactions

This course will provide a comparative perspective, enabling participants to navigate the complexities of SPAs in both common law and civil law systems, thereby enhancing their ability to structure and negotiate cross-border M&A transactions effectively.

Our trainer qualified as a solicitor so has experience in drafting legal sales agreement documentation.
Having trained as a Chartered Accountant with Deloitte he has a sound understanding of the key financial issues in the UK and European sale and purchase agreements (SPAs).
He has experience in over 40 years of M&A covering a wide range of regions including the UK, Europe, the US, Asia and Africa.
The trainer is still active in the M&A market through his various consultancies.
He has been involved in over 20 earn-outs.
Through presenting to clients involved in different aspects of M&A (advisers, transaction services/DD, Investment Banks and lawyers) he gains exposure to different aspects of the SPAs (sale and purchase agreements).

This course is designed for professionals involved in M&A transactions across various jurisdictions, particularly those in the UK, Europe, and other developed markets. It will be especially valuable for:

Legal Professionals:
- Senior associates and partners in law firms specializing in M&A
- In-house counsel at corporations involved in M&A activities
- Legal advisors to private equity and venture capital firms
- Lawyers practicing in both common law and civil law jurisdictions
Financial Professionals:
- Investment bankers working on cross-border M&A deals
- Private equity and venture capital professionals
- Corporate development executives
- Financial due diligence specialists
Corporate Executives:
- C-suite executives involved in corporate strategy and international M&A
- Business development managers overseeing expansion into new markets
- Integration specialists managing cross-border mergers
Advisors and Consultants:
- M&A advisors and consultants with an international client base
- Transaction services professionals working on multi-jurisdictional deals
- Valuation experts familiar with different accounting standards
Other Professionals:
- Warranty and indemnity insurance providers operating in multiple countries
- Escrow agents involved in international transactions
- Corporate governance specialists advising on cross-border compliance
- ESG (Environmental, Social, and Governance) professionals involved in global M&A transactions
Practitioners from Specific Regions:
- Professionals from the UK and common law jurisdictions looking to expand their knowledge of civil law approaches
- Practitioners from EU countries seeking to understand differences in M&A practices across member states

Sale and Purchase agreements lie at the heart of any private acquisition. This course focuses on the key areas of the SPA. In Completion Accounts, the standard definitions of cash, debt and working capital adopt a very broad-brush approach paving the way for disputes post-completion. Where a Locked Box is used, the parties face different issues; particularly the definitions of leakage and the how-to draft sale and purchase agreements a value accrual (of cash or profits which is increasingly used).

Warranty claims present another area of potential difficulty, particularly how and when the measure of damages is calculated and the market is considering ways to enhance the buyer’s recovery for damages. In the UK, Infiniteland Case Review has broken new ground in terms of the disclosure standard and what constitutes the buyer’s ‘knowledge’. The course also considers the areas where civil law differs in its approach; for example, the interpretation and the approach to damages for warranties in share purchase agreements and the approach to disclosure.

Split Exchange and Completion is another potentially controversial area regarding which warranties need repeating and how that dovetails with disclosure and the MAC.

Reference is made during the course to recent or relevant leading Case Reviews.

Please note that this course covers material that is also covered in our Advanced Negotiation Issues in M&A course.

Very good concrete examples. Lively and interesting presenter. Practical approach that can be put straight into use.
The instructor applied knowledge through numerous real world examples as well as highlighting common mistakes.
I think the trainer did an excellent job. Great examples/case studies but most notably his responsiveness to questions and remarks was excellent. He's got a wealth of experience to share and he does.
Tips learnt about practical points for negotiating will be used for real-life M&As.

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(min. 50 participants)