Photo of Joe BrennanBy Joe BrennanApril 18 2017
Business Law

Anatomy of a Purchase and Sale Agreement M&A Basics Series - Article 4

You have agreed to terms with the seller on the purchase price for the seller’s business. You job is now done and all that is left is for the lawyers to “paper” the deal, right?  Well, not really.  A good purchase and sale agreement will not only deal with the assets being purchased and the purchase price to be paid, it will also properly allocate certain transactional risks, both pre-closing and post-closing, between the buyer and the seller.  And for that, the lawyers will need significant client input and agreement.

This “Insight” provides a high level point-form overview of the anatomy of a typical purchase and sale agreement so that you can see the different transactional risks that need to be addressed within the agreement. Subsequent “Insights” will discuss the components of a typical purchase and sale agreement in more detail.

A typical purchase and sale agreement will be divided into the following sections:


o    Parties to the transaction.

o    High level summary of the transaction.

      - Party X will buy the assets of Company Y from Party Z.

Definitions and Interpretation.

o    Defined terms used throughout the agreement.

o    Additional interpretive clauses such as meaning of “knowledge”.

      - i.e. Party X will be deemed to have knowledge of a fact if Officers A, B and C have knowledge of that fact or would have had knowledge of that fact had they conducted a due and reasonable inquiry.

Structure and Subject Matter of the Transaction.

o    Straight purchase vs amalgamation vs plan of arrangement.

o    Share sale vs asset sale vs hybrid transaction.

Purchase Price.

o    Purchase price calculation.

o    Purchase price adjustments.

o    Escrow or holdback of payment.

o    Method and timing of payment (cash, shares, vendor take-back, earn-out)

Representation and Warranties.

o    Seller’s representations and warranties to buyer.

o    Buyer’s representations and warranties to seller.

o    Representations and warranties of additional parties such as beneficial shareholders, if applicable.


o    Seller’s covenants to buyer.

      - Pre-closing.

      - Post-closing.

o    Buyer’s covenants to seller.

      - Pre-closing.

      - Post-closing.

Closing Conditions.

o    Buyer’s conditions precedent to closing.

o    Seller’s conditions precedent to closing.

Closing Arrangements.

o    Items to be delivered by each party on closing.

o    Ancillary agreements, as applicable:

      - Transitional Services Agreement.

      - Non-Competition and Non-Solicitation Agreement.

      - Escrow or Holdback Agreements.

      - Vendor Take-back Financing Agreements.

      - Shareholder Agreements.

Termination Rights.

o    Seller’s rights to not close and terminate agreement.

o    Buyer’s rights to not close and terminate agreement.

o    Termination fees.

      - If the seller backs out of the deal.

o    Reverse termination fees

      - If the buyer backs out of the deal.

Indemnification Provisions.

o    Seller’s pre and post-closing indemnification obligations to buyer.

o    Buyer’s pre and post-closing indemnification obligations to seller.

Miscellaneous Clauses.

o    Public disclosure rights and limitations.

o    Responsibility for expenses.

o    Governing law and jurisdictions where legal actions may be commenced.

o    Arbitration versus court proceedings. 

Invitation for Discussion:

At Nerland Lindsey LLP, we have a wealth of experience as legal advisors on M&A transactions, both large and small, and understand the process from beginning to end. If you are contemplating buying or selling a business, please do not hesitate to contact one of the lawyers in our business law group.  We would be happy to assist you on this exciting journey.


Note that the foregoing is for general discussion purposes only and should not be construed as legal advice to any one person or company. If the issues discussed herein affect you or your company, you are encouraged to seek proper legal advice.

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