SPA,Share Sale and Purchase Agreement is an agreement for the sale and purchase of a stated number of shares at an agreed price, the shareholder selling their shares is the seller and the party buying the shares is the buyer.
SPA's are, at the majority, a readily over the counter product with some average tweaks, M&A lawyers are very good in this, while at countries' levels, major changes or clauses needed to be captured to safeguard your investments.
Welcome to our by-weekly newsletter coming to you from Cairo Egypt.
SPA eventually has to reflect all the findings for all the Due Diligence (DD) exercises performed in a legal language, the "Marked SPA" would be circulated, normally, in the middle of the DD exercises, so both parties would have enough time to review, DD findings would be factored as the deal goes.
SPA, among others, include the Reps. & Warranties captions which are very crucial to preserve both parties' rights.
SPA, include as well, "Completion Statements", "ESCROW Mechanism" and "Price Adjustments".
"Well, well those are common knowledge, what are those items specific to Egypt?"
Due to the spreading nature of the "Double Booking" practice in Egypt, always include the "Disclosure letter" in the annex to the SPA, compelling the seller to disclose all liabilities, at his best estimate, that the target might be subject to. Those disclosures should be linked to the Reps. and Warranties to save the buyer incase something tangible are not disclosed.
Special restructuring efforts are very crucial before acquisition, where, the ownership for the shares and the major assets are most probably in the name of the individual owners. Tax effect might be triggered from this transfer of ownership.
"Licenses and permits" are in what name or ownership, individual owners or the target, adding to this many assets have no permits due to the fact that, there would be lots of fines on those assets due to incompliance of those assets.
Its always protective to the buyer to avoid "Lock Box" Transaction, usually add Completion Accounts to the deal, in addition to "Leakage Mechanism" as well. Leakage mechanism limit the ability for the former management to act adversely in the transition phase.
"FDD" exercise should be presenting the Working Capital levels and adjustments in addition to the net debt statement, (i.e. debt net of cash at transaction date), both should be included in the annexes to the SPA, as they are major adjustment to the "Enterprise Value".
"TDD" would present the tax exposure for about 5-6 different kind of taxes, if the consideration is adequate enough to absorb the tax ESCROW retention, if not, otherwise Reps. and Warranties would be the practical solution.
"Related parties", are very common practice here in Egypt, its a tomb of unsettled and cumulative accounts, its recommended to have a pre-completion confirmations and settlements of those accounts pre-completion.
"Non-to-compete" clauses, are very crucial, especially, when the major shareholder is influential party in the profession, or market place and is capable to raise/acquire another fresh business and compete with the business under acquisition within the investment holding period.
Seller warrants to the Purchaser that each of the Seller's Warranties:
is true, accurate and not misleading as at the date of this Agreement; and
will be true, accurate and not misleading as at the completion date.
Wow, hold on Mr. SPA, its too much to digest, any list to consider all of this?
The answer is "Yes", use a very considerable "CP List" CP is the Condition Precedent list, which include all conditions that needed to be met or fulfilled before transfer of shares.
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