A share purchase agreement (“SPA”) is typically entered into by and between a buyer and seller(s) of a target company’s shares whereby the seller(s) agrees to sell a specific number of shares to the buyer for a specified price. The SPA serves to manifest mutual written agreement of the terms and conditions of the sale of some or all of the shares of a target company. In this article, assume a target company includes its subsidiaries. SPAs fall within the domain of mergers and acquisitions (“M&A”) and typically arise where an investor wholly or partially acquires a company. This article addresses the key terms associated with the private acquisition of a target company’s shares.
When a company acquires all, or a significant portion, of the shares of a target company that investor also acquires its liabilities. Consequently, an M&A transaction is typically accompanied by extensive due diligence (“DD”), not just to understand to what, if any, liabilities the acquirer will be exposed, but also clarify key information about the seller, such as its actual asset base (fixed assets, contracts, finances, human resources and customers, among others). DD is the fundamental audit or investigation of a target company conducted by a purchaser to compile and assess information that will directly impact the decision to make the acquisition. From a legal perspective, DD is typically conducted as to corporate records, general legal claims and litigation involving the target company, intellectual property (“IP”) and trade secrets, labour, anti-money laundering, anti-corruption, data privacy, environmental and other regulatory compliance that may be relevant to the specific industry of the target company. DD is also conducted in relation to the target company’s financials by accountants and auditors. In cross-border M&A, where the target has assets and operations in different countries, DD must be conducted in multiple jurisdictions and carefully coordinated to verify the target’s actual assets and liabilities in relation to the laws and customs of each location.