The purchase agreement

The short version

• The purchase agreement is the final, binding contract for the sale. It replaces the letter of intent.
• It sets the price and terms, what the seller promises about the business and what happens if a promise turns out wrong.
• Your M&A attorney negotiates it. Your CPA and lender review the parts that affect them.
• The seller's promises and your protections are the heart of it.
• Read it yourself. You are the one signing.

What it covers

• Price and payment: cash at closing, any seller note, any money held back and any working capital adjustment.
• What you are buying, and what you are not.
• The seller's promises, called representations and warranties: for example, that the financial statements are accurate, there are no undisclosed lawsuits and the equipment works.
• Disclosure schedules: the seller's written list of exceptions to those promises. Read them carefully. They tell you what the seller is admitting.
• Indemnification: what the seller owes you after closing if a promise turns out wrong, and the limits on it.
• Money held back at closing to cover claims, often held by an escrow agent.
• Conditions to closing: loan approval, landlord consent and other approvals.
• The seller's non-compete and non-solicitation.
• The seller's role after closing, often in a separate consulting or transition agreement.
• How the price is split across assets for taxes.

Your main protections

Strong promises from the seller, covering the things that matter most to this business.

Indemnification that means something. Watch the limits: the most the seller could owe, small claims that do not count and how long you have to make a claim. Your attorney will negotiate these.

Money held back at closing, so you are not chasing the seller later.

A clear non-compete, so the seller does not take back the customers you paid for.

Coordinate with your lender

The purchase agreement and the loan documents must match: the price, the structure, any seller note and its standby terms and any rebate. Your attorney and the lender's attorney should review each other's drafts.