16 Key Provisions of the Acquisition Agreement
16.1 General Remarks
The key provisions of the acquisition agreement regulate the structure of the ac-
quisition, the separation of signing and closing, the disclosure of information, the
specifications of the object (representations, warranties, covenants), the price,
remedies in the event of breach of contract, the effect of the acquisition on em-
ployees, and tax.^1
16.2 The Specifications of the Object..........................................................
Representations, warranties, and covenants normally set out the specifications of
the object. They make up the bulk of the acquisition agreement. The specifications
of the object are normally defined in four ways: by defining the object (shares, as-
sets); by defining the contract parties (identity of parties, representations); by de-
fining warranties (the specifications that the object must have at the time of sign-
ing, closing, handing over of the object to the acquirer, or another point in time);
and by defining covenants (the specifications that the object must have at a later
point of time). However, there is variation partly caused by the governing law.
Purpose of specifications. To some extent, the vendor’s representations, war-
ranties, and covenants serve the same purpose as similar undertakings by the bor-
rower in a loan facility agreement.
If the acquirer’s perceived risk is reduced, the vendor may be able to obtain a
better price. Through the use of agreed specifications of the object, the vendor
may disclose information that only the vendor knows or to which only the vendor
has access. Such undertakings also signal the vendor’s ability and willingness to
comply with them.
The vendor can try to use “as is” provisions and language that limits the num-
ber and scope of its undertakings. However, this can: signal that the vendor wants
to benefit from information asymmetries; allocate risk to the acquirer; and reduce
price.
(^1) Goldberg L, Acquisition Agreements from a Business Perspective (Principal Focus: Pri-
vate Company Acquisition for Cash). In: PLI, Doing Deals 2008: Understanding the
Nuts & Bolts of Transactional Practice, Corporate Law and Practice Course Handbook
Series. New York City (2008).
P. Mäntysaari, The Law of Corporate Finance: General Principles and EU Law,
DOI 10.1007/ 978-3-642-03058-1_16, © Springer-Verlag Berlin Heidelberg 2010