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A typical off-market share sale/acquisition involves several stages that require careful consideration and professional input. From legal due diligence, to drafting the acquisition document, and post-completion matters, each stage plays an important part in shaping the deal outcome.

In this article, part of a series of articles on share and asset sales, we consider the key stages in a share sale/acquisition. Our next article in this series will consider the key stages in an asset sale/acquisition. You can find out more about the differences between a share sale and asset sale in our article entitled “Share Purchase agreement v asset purchase agreement”.

1. Pre-acquisition matters
Once negotiations have progressed enough between the parties to have reached a landing on the key terms of the deal, parties will usually consider formalising these arrangements in Heads of terms (HOT), confidentiality agreements and exclusivity arrangements.

  • HOT are also known as a letter of intent or memorandum of understanding. This is a non-binding agreement (save for specific provisions) setting out the key terms of a share sale (such as consideration, payment mechanism, conditions precedent to completion, approach to due diligence, warranties/indemnities and a deal timetable, etc.). A negotiated HOT should make drafting/negotiating the acquisition document an easier process as the main bones of contention ought to have been covered in it.
  • Confidentiality agreements aim to safeguard the information relating to a target company given to a purchaser, including from a data protection perspective.
  • Exclusivity arrangements. The buyer will often want a seller to enter into an exclusivity arrangement to prevent the seller from seeking an alternative buyer whilst the buyer incurs the costs of the transaction.

2. Due Diligence (DD)
DD is a comprehensive review of a target company’s finances, legal documents, operations, regulatory compliance issues (including data protection) and commercial performance. DD aims to identify potential risks/liabilities and opportunities associated with the transaction, providing the buyer with a clear understanding of the target’s health.

Where required, a buyer’s financial advisors or accountants generally carry out financial DD (known as FDD) and a buyer will usually carry out operational and commercial DD. Legal DD (carried out by lawyers) focuses on a review of contracts, litigation, regulatory compliance, and other legal matters, providing insight into potential liabilities.

The results of the buyer’s overall DD exercise will inform their lawyer’s approach to drafting the transaction documents.

Care should be taken to ensure that personal data is transferred in accordance with data protection law, that the appropriate consents are in place and that personal data is anonymised, etc. Privacy notices need to be checked to ensure that the Buyer will be permitted to use personal data to achieve its business goals – especially if the Buyer is planning to introduce new technology or other changes to the way the business operates.

Change of control provisions need to be checked to ensure that IT and IP licences, as well as other material contracts, are unaffected by the sale.

3. The share purchase agreement (SPA)

The SPA is the key legal document outlining the terms and conditions of the share acquisition. In reality, this is often drafted alongside the DD exercise.

The key and most highly negotiated provisions in an SPA are those dealing with the purchase price, warranties, indemnities, limitations and the tax covenant (the last three of which are detailed below). A more complicated SPA might also include price adjustment mechanisms, deferred payments and security for payment.

If there will be a gap in time between exchange/signing and completion, the SPA will usually include provisions regarding conditions precedent to completion, MAC clauses, obligations in the interim period, etc. The legal issues that may arise in a split sign/completion deal will be considered in a standalone article in this series.

a. Warranties

Warranties are assurances to the buyer, statements of fact, made by the seller about the target company. These warranties typically cover areas such as the company’s financial condition, share capital, assets, contracts, absence of litigation, compliance with laws (especially environmental, health and safety, data protection and anti-money laundering), employees, tax and other material information.

If a warranty in a SPA is breached, it means that the statement made by the seller is found to be untrue or inaccurate. The specific remedies available to the buyer will depend on the terms of the SPA, as well as applicable laws and jurisdiction. Typically though, a buyer will have several options:

  • claim for damages (generally): the buyer may seek financial compensation from the seller to cover any losses incurred as a result of the breach. The amount of damages would depend on the extent of the breach and the impact it has had on the buyer’s investment.
  • specific performance (sometimes): in some cases, the buyer may seek specific performance, where the seller is required to fulfill their obligations as outlined in the agreement. This could involve rectifying the breach or taking other corrective actions to remedy the situation.
  • indemnification (sometimes): the buyer may also be entitled to indemnification, where the seller agrees to reimburse the buyer for any losses, costs, or expenses incurred due to the breach of warranty. This would need to be specifically provided for in the SPA. Such a provision is common in US deals and used to be rare in the UK but is becoming a more frequent buyer ask.
  • termination of the SPA (very rarely): in severe cases where the breach is significant and fundamental to the transaction, the buyer may have the right to terminate the SPA altogether. Again, this would need to be specifically provided for in the SPA.

b. Indemnities

Indemnities serve as a financial safety net allowing the buyer to seek compensation, often on a pound for pound basis, for certain losses, damages, or liabilities that arise from specified circumstances or events. The indemnities are usually based on specific known liabilities discovered as part of the buyer’s DD process, such as ongoing litigation or a known breach of environmental laws.

Read our article entitle “Indemnities in business-to-business contracts : A Guide” for further information on indemnities.

c. Tax covenant

A tax covenant is usually contained in a schedule to the SPA. It outlines the obligations and responsibilities of the buyer and the seller regarding tax-related matters. It typically covers issues such as tax compliance, filing requirements, and the treatment of taxes related to the transaction. The purpose of a tax covenant is to ensure that both parties understand their respective tax obligations and liabilities associated with the sale of shares.

4. Disclosure letter (“DL”)

The seller typically provides a DL, a detailed document that identifies any exceptions or qualifications to the warranties given in the SPA.

Whilst it serves as a mechanism to reduce the seller’s liability (by preventing the buyer from later claiming that they were misled or unaware of certain matters), it also promotes transparency by giving the buyer detailed information about any potential risks or liabilities associated with the target company being acquired. This can also serve as a basis for negotiating adjustments to the purchase price or additional protections in the SPA.

5. Ancillaries

Ancillary documents accompany the main transaction documents (SPA, DL, etc.) and address various transaction-related matters. These typically include:

  • a waiver of claims from the seller waiving legal actions against the target after the completion of the transaction
  • director/company secretary resignation/appointment letters
  • buyer/seller board resolutions approving the SPA and the transaction documents to which they are a party and authorising the entry into those documents
  • employment contracts or consultancy agreements outlining roles, responsibilities, and potential incentives to ensure the retention of key personnel
  • intellectual property assignments to safeguard the buyer’s rights to crucial assets

The parties should also consider whether there will need to be some form of data sharing agreement in place.

6. Signing/Completion

As a deal progresses, parties prepare for signing and completion. This involves (amongst other things):

  • finalising outstanding issues
  • ensuring all necessary regulatory approvals are obtained, and third-party consents are secured
  • where there is a split sign/close, confirming that all conditions precedent are met before proceeding to signing and completion
  • having all signatories in place

Nowadays most transaction documents are signed electronically, often using DocuSign. Find out more about electronic signing in our article entitled “DocuSign: Making signing contracts easier and (sometimes) more complex…”.

7. Post-Completion Matters

Following completion of a share acquisition, attention shifts to post-completion matters. This includes integrating the acquired business into the buyer’s operations and addressing any outstanding issues to ensure a seamless transition, for example, new data protection statements, data processing agreements and declarations of consent.

There are a number of legal points that need to be addressed such as paying stamp duty, updating statutory registers and making filings at Companies House. Individual sellers should also consider updating (or preparing) Wills. To find out more, read our article entitled “Post-completion of a share sale: How to dot the Is and cross the Ts”.


Navigating the key stages of a share acquisition requires careful attention to detail, strategic planning, and professional expertise.

From initial due diligence to negotiating the terms of the SPA, each stage presents unique challenges and opportunities for both buyers and sellers. By understanding and effectively managing the complexities involved, parties can mitigate risks, maximise value, and ultimately achieve a successful transaction.

Contact our Corporate & Commercial team if you would like advice and assistance with navigating a share sale/acquisition.


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