Share purchase agreement (SPA)

A share purchase agreement is the binding legal contract for the sale of a company’s shares. It sets out the price and payment mechanics, conditions to completion, warranties and indemnities from the seller, and remedies if statements prove untrue. It is negotiated after due diligence and signed at exchange, with completion following once conditions are met.

Negotiated in the final stage of sell-side and buy-side M&A transactions.

An SPA, or share purchase agreement, is the binding legal contract that governs the sale of a company’s shares from seller to buyer. It sets out the purchase price and payment mechanics, the conditions that must be satisfied before completion, the warranties and indemnities the seller gives about the business, and the remedies if those statements prove untrue. The SPA is negotiated after due diligence, signed at exchange, and completed once its conditions are met.

A share purchase agreement typically covers: the parties and the shares being sold; the price and any adjustment mechanism (such as completion accounts or a locked-box); conditions to completion; seller warranties on accounts, contracts, tax, litigation and compliance; indemnities for specific known risks; restrictive covenants; and the remedies and limitations on the seller’s liability. These terms allocate risk between buyer and seller and can be worth as much as the headline price.

In an M&A or investment banking process the SPA is the definitive agreement that closes the deal. After the adviser has run the sale, agreed a price and completed diligence, the SPA converts the commercial deal into a binding contract. A corporate finance adviser works alongside legal counsel to negotiate the commercial terms of the SPA so they protect the client’s value and risk position.

An LOI is a largely non-binding statement of proposed terms issued before due diligence begins in earnest. The SPA is the binding legal contract negotiated after diligence, setting out price and payment mechanics, conditions to completion, warranties, indemnities and remedies. The LOI frames the deal; the SPA commits the parties.

Warranties are statements of fact the seller makes about the company — its accounts, contracts, litigation and tax position — on which the buyer relies. If a warranty proves untrue, the buyer may claim remedies under the SPA. Together with indemnities and price adjustments, warranties allocate risk between buyer and seller.