Asset purchase agreement

Contents of the asset purchase agreement

The seller and buyer (and any guarantor) will enter into an asset purchase agreement, which can become a detailed and heavily negotiated agreement. This sets out the terms on which the sale is to take place, including:

1. •

   purchase price and payment mechanism, including any provision for deferred (or ‘earn-out’) consideration, payment by way of share consideration, or post-completion adjustments following the preparation of completion accounts

2. •

   conditions precedent to completion, such as regulatory or third party approvals, and the release of bank security over assets used in the target business

3. •

   arrangements for completion, including executing and handing over ancillary documents (such as assignments, transfer documents and a transitional services agreement)

4. •

   post-completion restrictions (by way of covenant) on the seller's activities

5. •

   warranties and indemnities, providing the buyer with recourse against the seller if untrue and inaccurate statements are made with respect to the target business's affairs, and

6. •

   limitations on the seller’s liability, including time limits for making claims and financial limits and thresholds

See Practice Notes:

1. •

   A guide to asset purchase agreements

2. •

   Issues