The share purchase agreement (SPA) is the binding contract that converts a negotiated deal into a legally enforceable transaction. Where the letter of intent outlines agreed commercial terms on a largely non-binding basis, the SPA creates real obligations: the seller must deliver the shares, the buyer must deliver the funds, and both parties carry representations about the deal that survive the closing date.

For M&A advisors, the SPA phase begins after exclusivity is granted and due diligence is underway. This is the phase where deal value can be eroded or protected — where experienced advisor coordination, clear LOI terms, and well-prepared data room documentation make the largest difference.

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SPA vs APA: The Structural Choice Before Drafting Begins

The most consequential documentation question in M&A is whether the deal is structured as a share purchase (SPA) or an asset purchase (APA). This decision — typically resolved at the deal structure discussion or LOI stage — determines which document governs the transaction.

Share Purchase Agreement (SPA)

The buyer acquires the company’s shares. The legal entity transfers intact — with all its assets, liabilities, contracts, employees, and legal history. SPAs are simpler to execute (one equity transfer rather than itemised asset assignments) but expose the buyer to historical liabilities.

Asset Purchase Agreement (APA)

The buyer acquires specific assets and defined liabilities. The legal entity remains with the seller. APAs require each material contract to be assigned or novated individually but allow buyers to selectively assume liabilities.

Why this matters for advisors: Sellers generally prefer SPAs for tax efficiency — gains are often taxed at capital gains rates rather than ordinary income rates applicable to certain asset sale proceeds. Buyers often prefer APAs for liability protection. This tension surfaces in SPA drafting when tax and legal advisors on both sides argue for different structures. Advisors should model the after-tax economics for their client under each scenario before the LOI is countersigned.

Key Sections of an M&A Share Purchase Agreement

A complete SPA contains eight core sections:

1. Definitions

Establishes the meaning of every term used throughout the agreement — target, buyer, seller, company, shares, closing date, working capital, and hundreds of others. Imprecise definitions create ambiguity that becomes expensive to resolve post-close.

2. Sale and Purchase

The operative clause: the seller agrees to sell the shares and the buyer agrees to buy them, at the agreed price and on the agreed terms. References the consideration, the specific shares being transferred, and the effective time of transfer.

3. Purchase Price and Adjustments

Specifies the total consideration and the mechanisms that adjust it. Common adjustment mechanics:

  • Working capital adjustment — actual net working capital at close compared to the agreed target; the difference creates a true-up payment from one party to the other
  • Cash and debt adjustment — the EV-to-equity value bridge; actual cash and debt balances at close adjust the equity consideration delivered to the seller
  • Earn-out provisions — contingent consideration tied to post-close performance metrics; specifies the metric (EBITDA, revenue), measurement period, cap, payout timing, and dispute resolution process

4. Representations and Warranties

The seller’s factual statements about the business. Standard reps cover: corporate organisation and authority, accuracy of financial statements, material contracts, intellectual property ownership, employee and benefit matters, absence of undisclosed litigation, tax compliance, environmental obligations, and regulatory approvals.

The accuracy of these representations as of both the signing date and the closing date determines whether the buyer has an indemnification claim after close. Advisors should review the disclosure schedules — the exhibits attached to the SPA that qualify or modify specific reps — with the same scrutiny as the reps themselves. Disclosure schedules are where most deal-specific risk gets documented or buried.

5. Covenants

Obligations of each party between signing and closing. Standard seller covenants: operate the business in the ordinary course, avoid new material obligations or capital expenditures above agreed thresholds, maintain existing insurance, and grant buyer access for confirmatory diligence. Standard buyer covenants: pursue required regulatory approvals, maintain committed financing, and not take actions that would prevent close.

6. Closing Conditions

Specific, verifiable conditions that each party must satisfy before the closing can occur. Conditions to the buyer’s obligation typically include: accuracy of seller’s reps at closing, no material adverse change, receipt of required third-party consents, and all regulatory approvals obtained. Conditions to the seller’s obligation include: accuracy of buyer’s representations and evidence of financing availability.

Advisors should ensure closing conditions are objective and measurable. Conditions framed as buyer judgment calls — “buyer satisfied with the results of due diligence” — are effectively termination options.

7. Indemnification

The indemnification provisions allocate financial responsibility for breaches of representations and warranties after close. Key negotiated terms:

  • Cap — the maximum indemnification liability, typically 10%–20% of deal value for general reps; often higher (or uncapped) for fundamental reps such as title to shares and corporate authority
  • Basket / deductible — a minimum threshold before indemnification rights are triggered; often set at 0.5%–1.5% of deal value
  • Survival period — the window during which warranty claims can be brought; general reps typically 12–24 months; tax and fundamental reps often 3–6 years
  • Escrow — a portion of the purchase price held in escrow post-close to cover potential warranty claims; typically 5%–15% of deal value for 12–24 months

According to Deloitte’s M&A Transaction Advisory research, indemnification terms are the most frequently renegotiated SPA provisions in the period between LOI execution and definitive agreement signing in middle-market transactions.

8. Termination

Defines the circumstances under which either party may terminate the SPA before close — including mutual consent, failure to close by a long-stop date, breach by either party, or failure of a closing condition. Specifies the remedies on termination, including whether break fees apply and under what circumstances.

The Five Most-Contested SPA Provisions

1. Representations and Warranties Scope

Sellers want narrow reps with broad knowledge qualifiers and disclosure carve-outs. Buyers want comprehensive reps with limited exceptions. Whether a rep is qualified by “to the seller’s actual knowledge” versus “to the seller’s knowledge (including constructive knowledge)” can determine the viability of a post-close claim.

2. Earn-Out Mechanics

Earn-outs introduced at the LOI stage invariably generate disputes during SPA drafting over how the performance metric is calculated, which management actions can affect the metric, and what non-compete or non-solicitation obligations restrict the seller’s conduct during the earn-out period. PwC’s deal advisory research identifies earn-out disputes as the leading source of post-close M&A litigation in middle-market transactions.

3. Working Capital Target and Mechanism

The working capital target — the agreed net working capital level the business should deliver at close — requires precise definition of which balance sheet items are included, how seasonal fluctuations are treated, whether the target reflects a trailing average or a specific date balance, and how the true-up period and dispute resolution process work. Advisors who allow vague NWC mechanics at the LOI stage spend weeks relitigating them in SPA drafting.

4. MAC Definition

The material adverse change clause defines when a buyer can exit the transaction or seek to renegotiate price after signing. Sellers push to narrow the MAC definition by excluding general economic conditions, industry-wide events, changes in financial markets, and macroeconomic developments. Buyers push for broad MAC definitions that protect them against business deterioration between signing and closing. The carve-outs, and whether carve-outs apply to events that disproportionately affect the target, are heavily negotiated.

5. Representations and Warranties Insurance

Representations and warranties insurance (RWI) has become standard in many middle-market transactions. RWI allows buyers to bring warranty claims against an insurance policy rather than directly against the seller, often replacing or supplementing the traditional escrow arrangement. McKinsey’s deal analytics research notes that RWI adoption in North American middle-market M&A reached approximately 70% in 2024 transactions above $50 million deal value. For sellers, RWI enables a cleaner exit with fewer post-close obligations; for buyers, it provides a solvent counterparty for warranty claims regardless of the seller’s post-close financial position.

The Advisor’s Role in the SPA Phase

M&A advisors do not draft the SPA — legal counsel does. But advisors play a critical coordination and protection role throughout the SPA phase.

Before drafting begins: Ensure that key terms negotiated in the LOI are clearly documented so they are not relitigated during legal drafting. The areas where LOI vagueness becomes most expensive in SPA negotiation: earn-out mechanics, working capital definition, indemnification structure, MAC carve-outs, and escrow amount and duration.

During due diligence: Coordinate information flow through the data room and identify issues early that may require SPA term adjustments. Material issues surfaced in the due diligence checklist review — undisclosed liabilities, contract assignment restrictions, tax exposures — are best resolved before SPA negotiation rather than during it, when buyers have leverage to seek price adjustments or enhanced indemnification.

During SPA negotiation: Stay close to the legal process to prevent buyer’s counsel from relitigating deal economics under the guise of legal drafting. Common overreaches: broadening MAC definitions beyond what was contemplated at LOI, expanding indemnification caps beyond agreed ranges, and introducing new closing conditions not mentioned at LOI.

At closing: Coordinate satisfaction of closing conditions, verify receipt of required consents, confirm escrow mechanics and wire instructions, and manage the execution logistics across all parties and their advisors.

Common Advisor Mistakes in the SPA Phase

Stepping back after the LOI. Some advisors assume that deal economics are locked after the LOI and disengage from the legal process. Experienced advisors stay close through SPA execution because key economic terms — working capital, earn-out, escrow — can erode significantly in legal drafting.

Allowing earn-out mechanics to remain undefined. An earn-out with undefined mechanics at the LOI stage becomes a buyer drafting exercise during SPA negotiation. Advisors should insist on resolving earn-out specifics — metric, measurement period, cap, buyer conduct restrictions — before countersigning the LOI.

Ignoring disclosure schedules. The SPA reps are only as protective as the disclosure schedules that qualify them. Advisors should review schedules to ensure disclosed items accurately reflect data room content and do not create unexpected liability exposure for either party.

Frequently Asked Questions

What is a share purchase agreement in M&A?

A share purchase agreement (SPA) is the binding definitive document in a stock acquisition — it transfers ownership of a company's shares from the seller to the buyer and governs all deal terms including price, representations and warranties, conditions to close, and indemnification. Unlike the letter of intent (LOI), which is largely non-binding, the SPA creates legally enforceable obligations for both parties.

What is the difference between an SPA and an APA in M&A?

An SPA (share purchase agreement) transfers equity in the company — the buyer acquires the shares and inherits all the company's assets and liabilities. An APA (asset purchase agreement) transfers specific assets and defined liabilities, leaving the legal entity with the seller. Buyers typically prefer APAs for liability protection; sellers typically prefer SPAs for tax efficiency (capital gains vs. ordinary income treatment in many jurisdictions).

What are representations and warranties in an M&A SPA?

Representations and warranties are the seller's factual statements about the business — its financial condition, contracts, employees, intellectual property, litigation, and regulatory compliance. They survive closing and form the basis for indemnification claims if they prove false. The scope, survival period (typically 12–24 months), indemnification cap (often 10%–20% of deal value), and basket (deductible) are all heavily negotiated.

How long does it take to negotiate an M&A SPA?

A straightforward middle-market SPA typically takes 4–8 weeks from LOI signing to execution. Complex transactions with earnouts, regulatory conditions, multi-jurisdictional assets, or contested indemnification structures can take 12–16 weeks. The timeline depends heavily on the quality of the data room, the responsiveness of both parties' legal teams, and whether any material diligence issues surface during the negotiation.

What is a MAC clause in an M&A SPA?

A material adverse change (MAC) clause — sometimes called a material adverse effect (MAE) clause — allows the buyer to terminate or renegotiate the SPA if the target business suffers a significant negative change between signing and closing. MAC clauses are heavily negotiated because they define the circumstances under which a buyer can exit a deal after signing. Sellers push to exclude general market conditions, industry downturns, and macroeconomic events from MAC definitions.

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