The Secret to Buying a Company

There’s one exception where, except for a bare minimum, there aren’t any implied terms to rely on even if you wanted to, and your only protection is what’s in your contract and that’s buying a company.

Buying a company is pure caveat emptor so if the protection you are looking for is not in the contract you haven’t got it. To paraphrase Hollywood – if it ain’t on the page, it ain’t on the stage.

The standard approach for lawyers working on the purchase of a business is to agree a heads of terms and then from these to produce the long form SPA. The heads are the architect’s plans: they don’t resolve everything (there’s always snagging) but they will get you 90% of the way.

But there’s a critical step, often ignored, which comes before the heads. Unlike the heads, this step is not shared with the other side: it’s purely an internal exercise.

This step consists of being clear as to:

• the reasons you are buying the company (gain revenue? gain customers? gain technology? other?),

• the underlying assumptions that make those benefits hold true,

• the things that threaten those assumptions, and

• the mitigants and protections that reinforce the assumptions or defeat the threats.

This is a critical step because a) all companies are different, and b) the reasons two different buyers want to buy the same company can also be very different.

It’s this analysis that is the bedrock of the whole deal. It sets out why you – specifically you – are buying the company, and it’s the conclusions of this analysis that need to get fed into your view of the heads and then into the SPA.