Andrew Robins

Published 8 December 2021

An Examination of a SPA

Part 1. Preliminary Steps

As the name suggests, a share purchase agreement (SPA) is an agreement setting out the terms and conditions relating to the sale and purchase of shares in a target company. A share purchase is different from asset purchase which involves the purchase or sale of some or all of a company’s assets, such as equipment, inventory, real property, contracts or intellectual property.

The purchase of shares should not affect any of the target company’s operations and the seller will normally want to achieve a clean break from the target company. The buyer, meanwhile, acquires some or all of the liabilities of the target company. As a result, they will want reassurance and protection in respect of certain issues.

A SPA requires careful negotiation and detailed drafting, and whilst this may be a lengthy process that starts with due diligence, by planning ahead and allowing sufficient time for negotiations and drafting, it can make the difference between a successful sale and purchase which achieves both parties’ objectives and a disaster, fraught with future litigation, additional costs and a great deal of worry.

Of course, every SPA will be different, with its own unique provisions and requirements and for that reason, we cannot provide a comprehensive guide. But in this short series of three posts, we will be outlining the essential areas that those involved in negotiating a SPA need to consider.   

The preliminaries

There are some fundamental activities that must be undertaken before the drafting process can begin.


A specialist area in its own right, there are a number of different methods of valuation and parties will need to agree which is to be used as well as agreeing the accounting policies to be followed in order to ensure that they can be comfortably reconciled with one another.

Due diligence

Prior to the agreement or drafting of a SPA, complete and thorough due diligence needs to be carried out. This involves a professional audit, investigation and confirmation of various critical areas such:

  • An overview of the target company
  • Full financials
  • Intellectual property and data
  • Customer base, marketing and sales
  • Production capability and capacity
  • Management and employee situation
  • Corporate overview, including constitutional documents, officers and directors, subsidiaries, shareholders, securities, etc.
  • Legal issues including claims, pending claims or settlements
  • IT including software, costs, capacity and risk
  • Any environmental or compliance issues

Due diligence allows for informed decisions to be made by both parties, brings peace of mind to the buyer, and may also benefit the seller by way of supporting the valuation of the company. 

Preparing for due diligence

The above list can be daunting and therefore early preparation is key. Sellers should be collating the relevant documentation likely to be required well in advance of even finding a buyer. The following is a useful outline when planning your approach:

  • Set clearly defined objectives
  • Choose a skilled and experienced team
  • Establish responsibilities, processes and a timeline
  • Initiate the process as early as possible
  • Draft and agree a list all information required
  • Identify any risks
  • Agree and put in place any confidentiality agreements

Heads of Terms

Following on from the due diligence exercise, the parties and their representatives should agree and record the main terms of the agreement. This reduces the risk of future disputes as the nitty gritty drafting of the main SPA gets underway. Time spent on a carefully prepared Heads of Terms is usually time well spent.

SPA drafting preliminaries – definitions, interpretations and recitals  

Before the parties are ready to start agreeing and drafting the main details of the SPA, it’s important to time drafting some of the detail.

It is often both necessary and helpful to set out the background and context to the transaction in the recitals and explain the relationship between the parties and the purpose of the transaction.

Time should also be taken to define certain words and or terms for use throughout the document. This can go a long way to ensure a precise, concise and easy-to-read SPA.

With the preliminaries in place, the parties will be in a position to start preparing the main terms of their SPA and in our next post in this series, we’ll take a look at what needs to be considered and concluded at this stage.

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