Acquisitions

The Purchase Agreement

Read a sixty-page acquisition agreement the way a dealmaker does — by finding the four places where the money actually moves.

  • Advanced
  • 9 min total
  • 12 chapters

What decision this helps you make: What to fight for, article by article, in the document that converts your letter of intent into a legally binding transfer of a business.

What this topic is

The purchase agreement — asset purchase agreement, stock purchase agreement, or merger agreement — is the definitive contract that transfers a business. It answers five questions in a fixed order: what is being sold, what is paid and when, what each side promises, what must be true before either side has to close, and what happens when something goes wrong.

Why it matters

The letter of intent set the headline price. The purchase agreement decides the number that actually leaves your account, through the definitions of "Indebtedness" and "Net Working Capital," the closing adjustment, the escrow, and the indemnity. Two deals with the same $4.2M headline can differ by several hundred thousand dollars purely on drafting.

Who should learn it

Buyers and sellers of private companies who will sit in the redline meetings — and anyone who wants to stop treating the agreement as a black box their lawyer handles.

What you will understand

  • The ten articles of a purchase agreement and what each one is for
  • The cash-free, debt-free bridge from headline price to money in the seller's account
  • Why the definitions article is where the largest sums quietly move
  • The difference between a failed condition, a breach, and a termination — and what each is worth

Prerequisites

Common misconception

"The economics were settled in the letter of intent; the purchase agreement is just the lawyers writing it up." The letter set an enterprise value. The agreement sets the equity value, and the path between them runs through defined terms, a closing statement, an adjustment mechanism, an escrow, and an indemnity — every one of which is negotiated after the letter is signed. The heaviest drafting in the whole document happens in Article 1, which most buyers skip.