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Negotiating an Acquisition: 5 Key Deal Terms (Besides Price)
Posted October 31st, 2023 in Articles
Whether you are entering into a stock purchase agreement or an asset purchase agreement, there are several key deal terms to consider when negotiating an acquisition. While the purchase price is a key consideration that can make or break the deal, it is ultimately just one key term of many. Buyers and sellers alike need to ensure that they have adequate contractual rights and protections—and this applies before, during and after closing.
Here are five examples of key deal terms (besides price) when negotiating an acquisition:
Key Deal Term #1: Closing Contingencies and Dates
The parties’ purchase agreement should clearly outline all contingencies that must be met in order for the deal to close. It should also clearly specify the closing date and time. In most cases, it will make sense for the parties to have intermediate deadlines for exercising specific contingencies as well. For example, if the buyer has the right to back out after conducting its due diligence, the buyer may need to exercise this right no later than 30 days prior to closing.
Key Deal Term #2: Closing Procedures and Timeline
The parties’ purchase agreement should clearly outline the closing procedures and timeline as well. For example, if the parties will use a third-party escrow service, they should establish when the purchase price and purchased assets (if applicable) will be placed into escrow, and they should specify the steps to be taken (and the timing of each step) to release escrowed funds and other assets.
Key Deal Term #3: Transition Assistance
It is fairly common for a seller to agree to provide post-closing transition assistance as part of an acquisition deal. If transition assistance will be provided, the parties’ agreement should define the transition period and specify the number of hours that the seller (or the seller’s representatives) will provide assistance each week during the period. The agreement should also delineate types of assistance the seller will provide while providing examples of services that are not included.
Key Deal Term #4: Indemnification
Indemnification clauses shift liability from one contracting party to another. Within the context of an acquisition, it will often (though not always) make sense for the seller to indemnify for claims arising before closing while the buyer agrees to indemnify for claims arising after closing. But, there are exceptions, and the wording of these clauses is extremely important.
Key Deal Term #5: Dispute Resolution
Disputes between buyers and sellers can break up deals and lead to litigation before and after closing. To help ensure that any disputes get resolved as amicably and efficiently as possible, parties to stock purchase agreements and asset purchase agreements should include dispute resolution clauses that facilitate good-faith negotiations and help steer any disputes toward an out-of-court resolution.
Speak with a Negotiations & Acquisitions Consultant at Mithras Investments
This is just a small sampling of the terms that require careful consideration when negotiating an acquisition. If you are preparing for a deal, we invite you to contact us for more information. Call 305-517-7911 or send us a message online to schedule an appointment with a negotiations and acquisitions consultant at Mithras Investments.
