Sales and purchase agreements (SPAs) are the cornerstone of mergers and acquisitions. These contracts define the pricing and expected results from the transaction, making them critical documents. Crafting a spa contract requires precaution and, even more so, expertise.
The statistics underscore the importance of meticulous drafting: SPA agreement ambiguities and flaws are the main causes of post-acquisition disputes. Unsurprisingly, more companies have been resorting to legal partners like Acquinox Advisor SPA M&A to avoid contract pitfalls. Still, if the damage has already been done, it’s possible to work around it. Here’s how to do it.
Solving Disputes
Even small and family businesses, such as SPA M&A, can lead to brutal legal disputes. This means that even small business transactions call for the support of Acquinox Advisors SPA M&A. Thankfully, there are fast ways to settle such differences if both parties collaborate. Here’s what businesses can do before taking the matter to court.
Negotiation
It’s common sense that the best way to avoid contention is to start by trying to set up an informal negotiation. In this case, no other parties have to be involved, like in other ADR methods. In the best-case scenario, both parties address their concerns and agree upon a mutually beneficial solution. However, if the issues can’t be settled in this first approach, it’s time to consider other ADR options.
Conciliation
Since companies cannot settle SPA M&A disputes themselves, an expert conciliator might be handy. Conciliation requires the intervention of a neutral third party, the conciliator, who is responsible for developing solutions that satisfy both companies. It’s a very flexible solution where agreements don’t have to be legally binding, though this option is available once the conciliation is concluded.
Mediation
Mediation is similar to conciliation in many ways.
For instance, both cases require a neutral third party to intervene. It’s not up to mediators and conciliators to tell who’s right or wrong in the issue; their sole purpose is to strike a resolution that everybody can agree upon. Mediators aren’t requested to draft proposals like conciliators do. Still, once a resolution is reached, it can be turned into a legally binding contract.
Arbitration
An arbitrator can handle more complex issues than even mediators or conciliators could sort out. Although it’s still more informal and cheaper than a traditional legal procedure, it’s much more formal (and less friendly) than the options mentioned above. It’s also more flexible than formal litigation procedures since the parties involved can previously define the terms of arbitration.
Private Judging
Hiring a private judge is the final step before taking the matter to court. In this case, a professional with renowned expertise in the dispute field is required. Typically, private judges are former attorneys or judges. Unlike the previous options, the final result of this process is a legally binding resolution. Private judging can considerably speed up resolutions since it replaces traditional litigation systems.
Covering the Costs
A sales and purchase agreement dispute can be costly. Worse still, costs can spiral out of control very quickly if protective measures aren’t taken. There are a few ways to prevent such costs from escalating, as explained below.
ATE Insurance
After the event (ATE), insurance covers the costs of lost legal disputes once the judge hits the gavel. Typically, companies resort to ATE insurance when the outcome of the dispute is unclear. Covering the costs of lost cases can be extremely costly and a hard blow to a business’s financial health. Companies that opt for ATE insurance usually employ other legal instruments, like contingency and conditional fee agreements.
Contingency Fee Agreement
Companies can look for solicitors who will charge their fees only if they win the dispute. This is a common solution for property claims when one of the parties is reclaiming financial compensation for damages.
If the chosen law firm wins the case, it keeps a percentage of this compensation.
Conditional Fees Agreement
Like contingent fees, conditional fee agreements provide a solution for companies that cannot afford the upfront costs of the process. Also, here, law firms will only charge their commission if they win the cause.
Litigation Funding
Companies can also find partners to fund their litigation processes. It’s an excellent solution for parties that can’t afford to start the legal process but have solid winning chances. Similarly to law firms, these funders will keep a share of the financial settlement.
Conclusion
A poorly written SPA can turn into a headache in many ways. The most common disputes involve post-closing adjustments, breach of contract, intellectual property, breach of warranty claims, and non-compliance. Companies can avoid nasty and wasteful legal disputes by getting SPA right the first time. The global market of mergers and acquisitions has been breaking record after record in the past few years, and it’s likely to keep growing in 2025.