What to consider when negotiating sale and purchase of business

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Today’s post is on matters to consider when negotiating M&A deals, in particular during times of uncertainty.

Parties may want to consider the following:

1. Whether to include price adjustment based on agreed parameters.

Price adjustment is relevant if the value of the target company at the execution of the sale and purchase agreement (SPA) and at the completion of the transaction is materially different. What constitutes material difference should be documented in the SPA.

2. Whether to include a condition precedent in the SPA that there is no material adverse change (MAC) to the target company.

If yes, the SPA should define MAC and specify the parties’ recourse in the event the MAC clause is triggered.

3. The scope of indemnity given by the seller to safeguard the purchaser after the completion of the transaction.

The indemnity may cover circumstances such as where the target company is liable for:

(1) breach of contracts entered by the target company prior to completion; or

(2) other obligations arising from restrictions during the Covid pandemic in conducting the business of the target company prior to completion.

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#mergersandacquisitions

This post was originally posted on Linkedin on 4 February 2022. Follow me on Linkedin.

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