
Understanding modern debt funding: Structures, covenants and lenders
Our experts demystify how modern debt funding works, providing an overview of the most common structures, how covenants really work, and comparing banks and alternative lenders.
Glossary
A Share purchase agreement (SPA) is a legally binding contract that sets out the terms and conditions under which shares in a company are bought and sold. It defines the agreed purchase price, transaction structure, and the rights and obligations of both the buyer and seller.
A SPA is a core legal document used in mergers and acquisitions when a buyer acquires shares in a company. By purchasing shares, the buyer obtains ownership of the company itself, including its assets, liabilities, and contractual obligations.
The SPA sets out the detailed terms of the transaction. This typically includes the purchase price, payment structure, completion conditions, warranties, and indemnities provided by the seller. It also outlines how the transaction will proceed from signing through to completion.
In many transactions, the SPA incorporates mechanisms to adjust the purchase price based on financial information at completion. These may include working capital adjustments, net debt adjustments, or other agreed financial measures.
In the UK, SPAs are governed by contract law and are commonly used in private company acquisitions. The document reflects the commercial negotiations between the parties and forms the legal framework for completing the share sale.
Key characteristics of a SPA include the following:
A share purchase agreement typically operates through the following process:
A UK investor agrees to acquire all shares in a privately owned consultancy business. The parties negotiate the purchase price and document the terms within a share purchase agreement. The SPA includes warranties from the seller and a mechanism to adjust the final price based on the company’s net debt and working capital at completion.
A SPA does not always mean the transaction completes immediately after signing; completion may occur later once conditions are met.
A SPA does not only specify the purchase price; it also includes legal protections and risk allocation between the parties.
A share purchase agreement differs from an asset purchase agreement, which transfers specific business assets rather than company shares.
SPA stands for share purchase agreement. It is the contract that governs the sale and purchase of shares in a company.
A SPA typically includes the purchase price, payment terms, warranties and indemnities, completion conditions, and provisions covering how ownership transfers to the buyer.
A purchase price adjustment is a mechanism that changes the final transaction price based on financial metrics at completion, such as net debt or working capital.
A SPA generally becomes legally binding when it is signed by the parties involved, subject to any conditions specified in the agreement.
A share purchase agreement transfers ownership of shares in a company. An asset purchase agreement involves buying specific assets or parts of a business rather than the company itself.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this glossary entry only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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