A Sale and Purchase Agreement (SPA) is the legal contract between buyer and seller that sets out the terms of a business sale, including price, payment structure, warranties, indemnities and completion conditions. It is the document that legally transfers ownership of a business or its assets from seller to buyer.
How a Sale and Purchase Agreement works
An SPA is drafted by lawyers following due diligence and typically includes definitions of the deal terms, the consideration mechanism, whether a fixed price, an earn-out, or an adjustment based on completion accounts, along with warranties and representations about the business, indemnities covering specific known risks, conditions that must be met before completion can happen, and restrictive covenants limiting what the seller can do after the sale, such as competing with the business.
How UK businesses use Sale and Purchase Agreements
- Lawyers draft an SPA setting out a fixed purchase price with a completion accounts adjustment mechanism, so the final price reflects the target's actual net asset position at completion.
- A buyer negotiates warranties in the SPA covering the accuracy of the seller's financial statements, giving grounds for a claim if problems emerge after completion that weren't disclosed.
- An SPA includes an earn-out clause specifying the KPIs, calculation method and payment schedule for deferred consideration.
- A seller negotiates a restrictive covenant limiting how long they are prevented from competing with the business after sale, balancing the buyer's need for protection against the seller's future plans.
How Advantage supports M&A transactions
Advantage's EdgeFusion accelerator gives advisory firms and their clients clean, structured financial data throughout a transaction, supporting the due diligence, completion accounts and warranty positions that ultimately shape the terms of an SPA.
Frequently Asked Questions
Who drafts a Sale and Purchase Agreement?
Solicitors typically draft the SPA, usually starting with the buyer's legal team producing a first draft, followed by negotiation and comment from the seller's solicitors before the terms are finalised.
What is the difference between a warranty and an indemnity in an SPA?
A warranty is a statement of fact about the business that gives the buyer grounds for a claim if it turns out to be untrue and causes loss. An indemnity is a specific promise to compensate the buyer for a defined risk, regardless of whether the loss arises from a breach of contract.
Can an SPA include an earn-out?
Yes. Many SPAs include earn-out provisions defining how deferred consideration is calculated, which KPIs it depends on, and the schedule on which any additional payments are made to the seller.
