What is an Acquisition Agreement Review?
An acquisition agreement is a legal document that outlines the sale and purchase of a company. Since it includes important details about the transaction, such as pricing, warranties, and covenants, it needs to be clear and legally sound.
Reviewing an acquisition agreement is essential to ensure that both parties’ interests are protected and their risks minimized.
Read the rest of this article to learn about what an acquisition agreement typically includes, how to review it, and why you should consult with a lawyer for assistance with the process.
What’s Included in an Acquisition Agreement?
A thorough acquisition agreement contains key terms such as the following:
- Transaction structure. The agreement needs to specify if the transaction is an asset or stock purchase, and what will be included in the transfer, such as intellectual property.
- Pricing. The purchase price will be outlined, as well as how and when payment will be made.
- Representation and warranties. This includes the promises buyers and sellers make to each other, such as in terms of their financial status. For example, the seller’s representations might include providing accurate and updated financial statements, while the buyer needs to offer assurances that they will complete the transaction.
- Covenants. This specifies duties of both parties, before and after closing the deal.
- Indemnification. Should there be a breach, there will have to be compensation provided by the offending party.
- Conditions. Before closing the transaction, parties need to meet certain conditions. For example, if there are third parties involved, the agreement might state that they need to give their approval.
How Can You Review an Acquisition Agreement?
Before agreeing to all terms in an acquisition agreement, it’s crucial to read through it and get expert advice for anything you might want to negotiate. Here are some things to check in the contract.
Purchase Price
You want to consider more than the actual purchase price to ensure you understand all pricing terms. Think about how the amount is calculated and check that it’s specific to prevent vague formulas that can be manipulated.
There are typically three ways in which a purchase price can be paid:
- Cash. The buyer will pay the seller a lump sum, or installments over a defined period of time.
- Stock swap. This is when the seller gets shares in the company, which forms part of their payment.
- Earn-outs. Sometimes, a portion of the purchase price will depend on the company meeting specific financial goals after the acquisition.
Risks
You should check that the agreement doesn't make unrealistic claims which can be a red flag and put you at risk. It’s also essential to check who will be responsible should anything go wrong after closing the deal.
Termination Rights
Both parties should be able to terminate the agreement, but the document needs to outline what processes should be followed. It should also specify any triggers that result in automatic termination.
Specific Language
When reviewing the acquisition agreement, don’t skim through it or focus on specific terms while neglecting the rest. You want to spot any ambiguous or vague language and missing details or definitions. These are worth chatting to the other party, or a lawyer, about so that you can protect yourself.
Conditions
Before closing, there could be conditions that need to be met. Although some conditions are standard, they should always be objective and factual. If you spot any wording in the contract that seems subjective or vague, it’s a red flag.
Pre-Closing Covenants
Since the company that’s being transferred will need to continue to operate, there will be restrictions before closing the deal. These should be scrutinized so that you know exactly what is and isn’t allowed, such as in terms of hiring employees or signing new contracts.
Dispute-Resolution Clause
You want the contract to have a clear dispute-resolution clause should there be any disagreements between parties. These need to be aligned with the contract’s governing law so that you can understand where and how disputes can be settled.
Confidentiality
Sensitive information that is shared between parties during the acquisition process must be protected and remain private. Both parties must agree to avoid disclosing trade secrets or other information to third parties so that their competitive interests aren’t compromised.
Indemnification
These clauses in the agreement serve to protect both buyer and seller should any liabilities occur. Typically, the seller will indemnify the buyer for liabilities after the acquisition is complete, such as if there are unpaid costs.
Look for mention of survival periods that determine how long the indemnification period is valid for, as well as caps that set limits for damage amounts that can be claimed.
Do You Need a Lawyer for an Acquisition Agreement Review?
Although not every acquisition agreement requires the assistance of a lawyer, it’s advisable to hire one. Here’s why.
- Acquisition agreements can be complex and filled with confusing terms. A lawyer can unpack all the terms to ensure you don’t overlook anything that could potentially put you at risk in the future, whether financially or legally.
- Lawyers will spot any unfair terms and vague language, making revisions to the agreement so that it better serves your interests.
- They’ll help you understand your rights and duties prior to and after the transaction is complete.
- They’ll give you peace of mind that the agreement is legally sound, fair, and reasonable.
Where Can You Find a Lawyer for an Acquisition Agreement Review?
If you need to hire a lawyer for a review of an acquisition agreement, online legal marketplaces like ContractsCounsel make the process easier.
ContractsCounsel is one of the largest online legal marketplaces where clients can connect with vetted lawyers who have years of experience in conducting contract reviews and can guide you through the review and negotiation processes.
If you want to hire a lawyer from the ContractsCounsel platform:
1. Post your project on the ContractsCounsel marketplace. It’s free!
2. Specify some details about what you require.
3. Wait for lawyer bids. You’ll receive multiple bids from lawyers on the platform who want to assist you.
4. Review the lawyers' profiles based on criteria such as their location, experience, and client ratings.
5. Choose the best lawyer for your purposes, and get peace of mind that your contract is professional, fair, and legal before you sign it.
