M&A Definitive Agreement Terms

By Welch Capital Partners on
By Welch LLP on
By PitchBook on
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On
June 20, 2023

Key Terms in a Purchase and Sale Agreement

After weeks or months of discussions with targets about selling your business and following the entry into a non-binding letter of intent, a substantial (50–70 pages) definitive binding purchase agreement will be delivered to you. For many business owners, this may be the first time they have seen a purchase and sale agreement. Many will be overwhelmed by the sheer size of the document and its legalization.

The table below provides a concise overview of the various sections and the consequences of each.

Term Description
Execution Provisions Detail the structure of the deal and the form of consideration.
Definitions These will be referenced throughout the agreement (I usually print these out, so I don’t have to flip back to them as I make my way through the agreement).
Representation and warranties Outline exactly what is being sold, the conditions of the assets, and the fact that the seller is delivering a clean title (proof of ownership).
Covenants Agreements made between buyer and seller. For example, to keep certain employees.
Conditions to closing Conditions that must be met prior to closing, such as regulatory approval.
Termination Provisions Conditions under which the deal could be terminated. For example, if the buyer cannot secure financing within a defined period of time,
Indemnity

This is the section that outlines the liability that you will have following the closing of the transaction. Although it is the most legal in nature, it is a critical part of the agreement that you should spend time understanding.

The indemnity section sets forth the amount the seller can be liable for, the time period during which they can be liable, and under which circumstances such liability will arise.

Disclosure Schedules Provides supporting information regarding each of the representations and warranties set out in the purchase agreement.

Although we do not provide legal advice, we work with you and your lawyer to make sure you have a comprehensive understanding of the definitive agreement, and that the agreement accurately reflects the agreed-upon terms of the transaction.

For more information about the role the definitive purchase agreement plays in an M&A transaction, please contact cenman@welchcapitalpartners.com.

*Welch Capital Partners is not a law firm. This blog is not providing any legal advice. Please obtain legal advice prior to entering into a definitive purchase and sale agreement.

Key Terms in a Purchase and Sale Agreement

After weeks or months of discussions with targets about selling your business and following the entry into a non-binding letter of intent, a substantial (50–70 pages) definitive binding purchase agreement will be delivered to you. For many business owners, this may be the first time they have seen a purchase and sale agreement. Many will be overwhelmed by the sheer size of the document and its legalization.

The table below provides a concise overview of the various sections and the consequences of each.

Term Description
Execution Provisions Detail the structure of the deal and the form of consideration.
Definitions These will be referenced throughout the agreement (I usually print these out, so I don’t have to flip back to them as I make my way through the agreement).
Representation and warranties Outline exactly what is being sold, the conditions of the assets, and the fact that the seller is delivering a clean title (proof of ownership).
Covenants Agreements made between buyer and seller. For example, to keep certain employees.
Conditions to closing Conditions that must be met prior to closing, such as regulatory approval.
Termination Provisions Conditions under which the deal could be terminated. For example, if the buyer cannot secure financing within a defined period of time,
Indemnity

This is the section that outlines the liability that you will have following the closing of the transaction. Although it is the most legal in nature, it is a critical part of the agreement that you should spend time understanding.

The indemnity section sets forth the amount the seller can be liable for, the time period during which they can be liable, and under which circumstances such liability will arise.

Disclosure Schedules Provides supporting information regarding each of the representations and warranties set out in the purchase agreement.

Although we do not provide legal advice, we work with you and your lawyer to make sure you have a comprehensive understanding of the definitive agreement, and that the agreement accurately reflects the agreed-upon terms of the transaction.

For more information about the role the definitive purchase agreement plays in an M&A transaction, please contact cenman@welchcapitalpartners.com.

*Welch Capital Partners is not a law firm. This blog is not providing any legal advice. Please obtain legal advice prior to entering into a definitive purchase and sale agreement.

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