Marxman Advocaten has a team of specialists in the field of M&A - Berthe Schellinger and Pieter Verloop deal with this practice on a daily basis! Because they like to share our knowledge, a blog on this topic appears on our website every fortnight. Last time, we discussed due diligence; this week, an article on the purchase agreement.
Depending on the outcome of the due diligence (are the outcomes satisfactory to the buyer), a next step in the acquisition process may be the purchase agreement. Such purchase agreements are not standard. Each acquisition is unique and requires its own tailor-made purchase agreement.
There are various types of acquisitions. It may be that only the assets and (possibly) liabilities are acquired, or that the shares (or a portion of the share capital) are acquired.
The elements covered in a purchase agreement are largely the same across the various types of acquisition. It is important to pay attention to the purchase price (how it is calculated) and the method of payment (in instalments or deferred payment), (allocation of) liability, warranties and indemnities, and restrictive covenants (such as a non-competition clause for the seller and confidentiality).
Here, too, the importance of the due diligence review is emphasised once again.
Despite extensive discussions and negotiations, the parties cannot discuss or foresee everything. Certain risks may come to light during the due diligence process. An important part of the purchase agreement is therefore the arrangements regarding the allocation of liability. To what extent could the seller have identified and assessed risks during the due diligence process? If a risk materialises, who is liable for it and to what extent? Is it still reasonable to request indemnities from the buyer, given that a comprehensive due diligence process has taken place, and how extensive may those indemnities be?
Clearly documenting the agreements on all the issues raised above can prevent disputes arising at a later date.
Do you have questions about purchase agreements, warranties and indemnities or need help drafting or reviewing a purchase agreement? Our specialists will be happy to help you!