What's in a Purchase Agreement?
The purchase agreement is the legal document that closes your deal. It contains the final terms, your representations and warranties, closing conditions, and post-closing obligations. This is when deals get real—about 50% close once you reach this stage.
Key Sections of a Purchase Agreement
Purchase Price and Payment Terms
Final agreed-upon price and how it will be paid
Cash, stock, and earnout components
Escrow amounts and release conditions
Working capital adjustment mechanisms
Representations and Warranties
Legal promises you make about your business
Financial condition, legal compliance, customer relationships
Material contracts, intellectual property ownership
No undisclosed liabilities or pending litigation
Important: These create ongoing liability for you
Closing Conditions
What must happen before the deal can close:
- Completion of due diligence to buyer's satisfaction
- No material adverse changes to your business
- Key customer contracts remain in place
- Required regulatory approvals obtained
- Employment agreements signed
Indemnification Provisions
Who pays for what problems after closing
Survival periods for different types of claims
Caps and baskets on indemnification amounts
Procedures for making and defending claims
Post-Closing Covenants
What you agree to do (or not do) after closing:
- Employment terms and non-compete agreements
- Cooperation with integration efforts
- Restrictions on competing businesses
- Confidentiality obligations
The Disclosure Schedule
This companion document lists exceptions to your representations:
- Known legal issues or disputes
- Material contracts with unusual terms
- Customer concentration risks
- Any other business issues you need to disclose
Strategy: Be proactive about disclosing potential issues rather than hiding them
What This Stage Means
Getting to a first draft purchase agreement is a major milestone:
- Deal probability jumps to about 50% (vs 15% at LOI stage)
- Buyer has committed significant resources
- Most major terms are now locked in
- Focus shifts to execution and closing conditions