Strategies Within a Sale and Purchase Agreement

The question: what are some of the key strategies a seller can employ when negotiating a sale and purchase agreement?

This question relates to a question received on one of the courses we run where lawyers and corporate finance advisers consider key negotiations around "the numbers" in sale and purchase agreements constructed under UK law. Click on "financial issues" for more details about one of the CPD courses we run which deals with this area.

1. Debt balances: when calculating the value for shares consideration in the sale and purchase agreement, the seller could argue that balance sheet items are not debt (i.e. are not involved in the long term financing of the business). The seller could argue that these items shouldn't be deducted when moving from an initial headline debt-free-cash-free offer to the value for shares consideration. If debt items are not included and not deducted from the headline offer, shares consideration for the seller goes up.

2. Working capital: the seller could argue that the business has enough working capital. The seller could argue that the buyer should have known about working capital requirements for the business based on information previously released. This should help avoid a situation where a buyer tries to "chip" the sale price at the last minute, on the basis that the business does not carry enough working capital.

3. Target net asset value: the seller could argue that target net asset value should be referenced against an older balance sheet released early on in the transaction process, the same one the buyer referenced when they submitted their offer. Post deal completion auditors will measure the net asset value for the business. If actual net asset value, as measured by the audit, is relatively high compared to the target net asset value, the buyer will have to pay more to the seller.

4. Completion accounts: the seller could argue against the introduction of new accounting policies (for example, discounting old debtors) that might result in lower asset values as determined by a post-completion audit. If asset values are robust, actual net asset value (as measured by the audit) will compare favourably against target net asset value. There will be less chance that the seller has to compensate the buyer.

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