The hidden clauses of an SPA: what is really negotiated after the price
When an acquisition is announced in the press, the media almost always highlight a single figure: the transaction price. A company was sold for €500 million, another for €2 billion, or even $15 billion. Yet this amount often represents only a small part of what was actually negotiated between the buyer and the seller.
In practice, the longest discussions do not always concern the company's valuation, but rather the Share Purchase Agreement (SPA), the contract that legally governs the transaction. This document, which can exceed several hundred pages, defines the rights, obligations, and responsibilities of each party long after the transaction has been signed.
In M&A, reaching an agreement on the price is often only the beginning of the negotiation, not the end. The real challenge is determining who will bear the risks after closing.
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The price is almost never final
Contrary to popular belief, the price announced during an acquisition is not always the amount that is actually paid.
In many transactions, the parties agree on a reference price that will then be adjusted based on several elements observed at closing.
Available cash, debt levels, working capital requirements, or certain exceptional items can modify the final amount by several million euros.
These mechanisms prevent a seller from artificially changing the company's financial position between the signing and the effective completion of the transaction.
Two transactions announced at the same price can, after adjustments, result in very different final amounts.
Warranties and indemnities: one of the most sensitive clauses
Among all SPA provisions, warranties and indemnities are undoubtedly among the most heavily negotiated.
The principle is relatively simple: the seller guarantees to the buyer that certain information provided during the due diligence process is accurate. If an unknown liability appears after the sale and originates from before the transaction, the seller may be required to compensate the buyer.
Let us take an example.
A few months after an acquisition, tax authorities conduct an audit covering financial years prior to the sale and request several million euros in additional taxes.
The key question then becomes: who should bear this cost?
If this risk is covered by the SPA warranties, it is generally the seller who will have to compensate the buyer.
Warranties and indemnities allow risks to be allocated between the parties, even several years after the completion of the transaction.
Representations and warranties: much more than a formality
Before signing, the seller provides a series of representations and warranties.
The seller confirms, among other things, ownership of the shares being transferred, compliance with applicable regulations, possession of the necessary authorizations, absence of undisclosed litigation, and the accuracy of the company's financial statements.
These statements may appear obvious.
Yet their importance is considerable.
If one of them proves to be inaccurate after closing, the buyer may request compensation or even initiate legal proceedings.
Representations and warranties form the foundation of trust on which every transaction is built.
Thresholds, caps, and time limits: the most technical negotiations
Discussions do not only concern the existence of warranties.
Lawyers also negotiate their validity period, the minimum amounts required to trigger compensation, and the maximum amounts that can be claimed.
For example, certain warranties may expire after eighteen months, while tax or social security warranties may remain applicable for several years in order to cover statutory limitation periods.
Similarly, the seller will generally seek to limit financial exposure by establishing a maximum overall indemnification cap.
A highly protective warranty may lose much of its value if its cap is too low or its duration is too short.
Earn-outs: when the price depends on the future
Not all companies are easy to value.
This is particularly true for high-growth companies or businesses operating in innovative sectors.
To address this difficulty, parties may establish an earn-out.
A portion of the purchase price is paid immediately, while an additional amount will only be paid if certain objectives are achieved after the acquisition.
These objectives may relate to revenue, EBITDA, obtaining regulatory approvals, or signing strategic contracts.
An earn-out therefore helps reconcile the expectations of the seller, who is often optimistic, with those of the buyer, who is generally more cautious.
An earn-out transforms part of the sale price into a genuine bet on the company's future performance.
Non-compete clauses
After selling their company, a founder could be tempted to immediately create a new business in order to recover former customers.
To prevent this situation, buyers almost systematically impose a non-compete clause.
For a defined period and within a specific territory, the seller agrees not to engage in a competing activity.
This clause protects the value of the acquired company.
However, its scope is often heavily negotiated, as an excessive restriction could be considered disproportionate.
Buying a company without protecting its business would often mean buying an asset that the seller could recreate a few months later.
W&I insurance: a rapidly expanding market
For several years, Warranty & Indemnity Insurance (W&I) has played an increasingly important role in M&A transactions.
These insurance policies allow part of the risks covered by warranties to be transferred to an insurance company.
In practice, if a covered liability appears after the transaction, the buyer can be compensated directly by the insurer rather than by the seller.
This mechanism facilitates negotiations, particularly when sellers wish to quickly distribute the sale proceeds to their shareholders.
It has now become very common in transactions involving private equity funds.
W&I insurance often allows negotiations to move forward when they would otherwise have failed over warranty issues.
Commitments between signing and closing
In many transactions, several weeks or even several months separate the signing of the SPA (signing) from the effective completion of the sale (closing).
During this period, the seller continues to manage the company.
The buyer therefore seeks to prevent major decisions from being made without its approval.
The SPA then includes a series of commitments: restrictions on paying exceptional dividends, completing major acquisitions, taking on additional debt, or significantly changing the company's organization without prior approval.
These provisions preserve the value of the asset until ownership is officially transferred.
Signing does not mark the end of the seller's obligations; it opens a particularly controlled period.
Why negotiations can last several months
Once the price has been agreed, many people assume that the transaction is practically complete.
In reality, legal teams then enter the most complex phase.
Each clause is discussed, rewritten, limited, or strengthened in order to best protect their client's interests.
Investment funds, industrial buyers, and their advisors seek to anticipate every scenario that could occur after closing, even those with extremely low probability.
This attention to detail explains why certain negotiations continue for months, even when both parties are already fully aligned on valuation.
The purpose of an SPA is not to manage what is certain, but to organize how unexpected events will be handled.
Conclusion
The price is undoubtedly the most visible element of an acquisition, but it is rarely the issue that consumes the most time during negotiations. The real challenges often lie within the hundreds of clauses contained in the SPA, which determine the allocation of risks, the responsibilities of each party, and the financial consequences of events that may occur after the sale.
Understanding an SPA means understanding that the success of an M&A transaction does not depend solely on the value of the acquired company, but also on the quality of the contract governing the acquisition. Behind every major transaction lies considerable legal work, often invisible, but absolutely decisive in protecting the interests of both buyers and sellers.