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Glossary

Share Purchase Agreement

The definitive legal contract governing the sale and purchase of shares in a company — setting out the price, conditions, representations and warranties, and post-completion obligations between buyer and seller.

A Share Purchase Agreement (SPA) is the primary legal document that governs the acquisition of shares in a private company. It sets out the agreed price, the mechanics of how and when consideration is paid, the conditions that must be satisfied before the transaction can close, the representations and warranties each party makes about itself and the business, and the remedies available if those representations prove incorrect.

What a Share Purchase Agreement Contains

A standard SPA for a mid-market private company transaction covers:

1. Parties and Recitals

Identifies the seller(s), the buyer(s), and the target company. In transactions with multiple selling shareholders, each seller is a named party.

2. Sale and Purchase

The core operative clause: seller agrees to sell, and buyer agrees to buy, the shares at the agreed price on the completion date.

3. Consideration and Price

  • Total consideration — the enterprise value less net debt and working capital adjustment, or an agreed fixed price
  • Payment mechanics — cash at completion, deferred consideration, earn-out payments
  • Escrow arrangements — portion of proceeds held in escrow to cover warranty claims
  • Working capital adjustment — mechanism to adjust the final price based on actual working capital at completion vs a target

4. Conditions Precedent

Events that must occur before the parties are required to complete the transaction:

  • Regulatory approvals (competition clearance, foreign investment approval, sector-specific regulators)
  • Third-party consents (significant customer or supplier agreements requiring change-of-control consent)
  • Financing conditions (if buyer has a debt financing condition)
  • No material adverse change (MAC) — absence of a material deterioration in the business between signing and closing

5. Completion Mechanics

Describes what happens on the completion date: share transfer documents to be delivered, board resolutions, resignation of existing directors, appointment of new directors, and wire transfer of funds.

6. Representations and Warranties

A comprehensive set of statements made by the seller (and sometimes the buyer) about the condition of the business as at the date of signing and again at completion. Common seller warranty categories include:

  • Title warranties — seller owns the shares and has the right to sell them
  • Business warranties — financial statements fairly represent the business, no material undisclosed liabilities, no material litigation, compliance with laws, tax compliance
  • Property warranties — title to owned properties, lease obligations
  • Intellectual property warranties — company owns or has rights to use its IP
  • Employment warranties — employee obligations, no industrial disputes, compliance with employment law
  • Environmental warranties — no known environmental liabilities

Breach of warranty entitles the buyer to claim damages. The extent of liability is negotiated — typically subject to a cap (commonly equal to 100% of deal consideration), a floor (minimum claim size, often 1% of deal value), and a time limit (12–24 months from completion for business warranties; longer for tax warranties).

7. Indemnities

Specific dollar-for-dollar recovery provisions for known risks identified during due diligence — unlike warranties (which require proof of loss), indemnities trigger dollar-for-dollar payment on the occurrence of a specified event.

8. Restrictive Covenants

Post-completion obligations of the seller:

  • Non-compete — seller agrees not to compete with the business for a defined period (typically 2–4 years) within a defined geographic scope
  • Non-solicitation — seller agrees not to solicit employees or customers of the business
  • Confidentiality — seller agrees to keep confidential information about the business

9. Governing Law and Dispute Resolution

SPAs in Asia Pacific commonly specify:

  • Australia — NSW or Victorian law, with arbitration (ACICA) or court proceedings
  • Singapore — Singapore law, with SIAC arbitration for cross-border deals
  • Hong Kong — HK law, with HKIAC arbitration for cross-border deals
  • Malaysia — Malaysian law; offshore disputes often resolved in Singapore

Signing vs Completion (Closing)

Many M&A transactions have a gap between signing (executing the SPA) and completion (transfer of shares and payment of funds). This gap exists when:

  • Regulatory or competition clearance is required (1–6 months)
  • Third-party consents must be obtained
  • Debt financing must be confirmed

During this gap, the seller continues to operate the business, typically subject to interim conduct covenants (no material transactions without buyer consent). The buyer’s ability to walk away from the deal in this period is constrained to the conditions precedent and (if agreed) a MAC clause.

Locked Box vs Completion Accounts

Two alternative mechanisms for determining the final price:

Completion accounts:

  • Price is adjusted after closing based on actual balance sheet at completion
  • Working capital, net debt, and other items are measured and compared against targets agreed in the SPA
  • Adjustment (positive or negative) is paid after completion
  • More common in Australian domestic transactions

Locked box:

  • Price is fixed at signing based on an agreed historical balance sheet date (the “locked box date”)
  • Seller gives a covenant that no value has leaked from the business after that date (no dividends, management fees, or related-party payments above what is agreed)
  • No post-completion adjustment
  • More common in PE-to-PE transactions and European-style deals; increasingly used in APAC

Warranty and Indemnity (W&I) Insurance

W&I insurance is now standard in mid-market APAC transactions above ~US$20M enterprise value. It allows:

  • The seller to give clean title at completion without retaining escrow
  • The buyer to make warranty claims against an insurer rather than the seller
  • Both parties to achieve a cleaner economic outcome

The W&I policy is typically taken out by the buyer (buy-side policy), with the seller’s liability under the SPA effectively set to nil for most warranty categories. Premium is approximately 0.8–1.5% of insured value.

Amafi’s Role in SPA Negotiation

Amafi advises sell-side clients through the full SPA negotiation process — from term sheet to final execution. Our role includes reviewing and providing commercial context on warranty scope, working capital targets, earn-out mechanics, restrictive covenants, and escrow arrangements. Legal drafting is handled by the client’s M&A legal counsel; Amafi provides commercial oversight to ensure deal terms are consistent with market practice and the seller’s negotiating objectives.

Book a valuation meeting to discuss how a structured sale process leads to better SPA terms — not just a higher price.

  • Asset Sale — alternative acquisition structure where assets (not shares) are transferred
  • Representations and Warranties — the statements made in the SPA that back the transaction
  • Earn-Out — deferred consideration mechanism common in professional services and growth-stage transactions
  • Due Diligence — the investigation process that informs the SPA’s warranty and indemnity scope
  • Enterprise Value — the total transaction value that the SPA consideration is based on

Related Terms

Earnout

A contingent payment mechanism in M&A transactions where a portion of the purchase price is payable to the seller only if the acquired business achieves specified financial or operational milestones after closing.