Share Purchase Agreement (SPA): Key provisions of the international transaction

Mainstream

The Share Purchase Agreement (SPA) in an international transaction is not just a template contract for the sale of shares. This is the main tool for the allocation of risk between buyer and seller, which will determine their relationship for several years after closing.

The main issue is not to sign the deal. The main question is what happens if tax debts, environmental violations, unaccounted for liabilities or misstatements of financial statements are uncovered after the closure.

Therefore, an effective international SPA starts with three checks:

• What risks pass to the buyer, and what remain on the seller.
• What is the right and where the dispute will be considered?
• What mechanisms are there to guarantee compensation?

If these three issues are not worked out, even a perfectly structured deal can result in multimillion-dollar losses and multi-year arbitrations without practical reimbursement.

When it comes to deep SPA development

Detailed SPA study is necessary if:

• the company is acquired in European jurisdiction;
• The transaction is cross-border in nature;
• Buyer – private equity or venture capital fund;
• The seller is the founder or family;
• A significant portion of the price is deferred or tied to future performance.
• The structure of the transaction includes a shareholder agreement;
• international due diligence is carried out;
• the parties choose the applicable law (often English or EU law);
• disputes are subject to international arbitration;
• W&I insurance is required;
• There is a complex price mechanics (completion accounts, locked box, earn-out);
• There are several jurisdictions for the target company’s presence.
• The transaction involves restructuring or disbursing assets;
• There are sanctions, regulatory or antitrust risks.

The mistake most M&A members make

Many companies and investors start with the question:

How to sign and close a deal faster?

That's the wrong first question.

The right question is:

How to protect the value of the acquired asset after closing?

Sometimes the best result is a detailed package of assurances and guarantees with the seller’s individual responsibility. Sometimes, a W&I insurance policy that removes the risk from the seller. Sometimes a long-term deferred payment and a withholding mechanism. Sometimes, a combination of these instruments with binding arbitration in a neutral jurisdiction.

The structure of SPA requires not legal templates, but a commercial risk management strategy built on specific findings of due diligence.

Step 1. Checking commercial arrangements

Before diving into the text of the SPA, you need to fix the commercial parameters of the transaction, usually in Term Sheet or Heads of Terms.

Key points:

• What is acquired: 100% of shares, controlling interest, minority interest;
• structure of the transaction: direct purchase, merger, exchange of shares;
• the basic price and the mechanics of its determination;
• Closing conditions (conditions of precedent)
• Deferred payments, earn-out, escrow;
• Key restrictions for the seller after closing (non-compete, non-solicit)
• applicable law and dispute resolution procedure;
• Exclusivity and closing dates.

If Term Sheet is poorly developed, the positions of the parties in the SPA become mobile, and negotiations are delayed. A strong Term Sheet captures not only commerce, but also the principles of responsibility sharing.

Step 2. Key provisions of the SPA: must-work

The SPA in an international transaction must be tailored to a specific purpose, rather than copying precedent from another jurisdiction.

Price and payment mechanics

• Fixed price or adjusted for debt, working capital, net debt (completion accounts vs. locked box.
• The mechanism of loss of value before closing.
• Deposit of part of the price (escrow), holding (holdback), installment (deferred consideration).
• Earn-out tied to EBITDA, revenue or other KPI.

Closing conditions (Conditions Precedent)

• Getting corporate approvals.
• Regulatory approvals (antimonopoly, FDI in Europe)
• Renunciation of the priority rights of third parties.
• No significant adverse change (MAC/MAE clause)
• Receiving financing or confirmation of funds.

Representations and Guarantees (Warranties and Representations)

• Fundamental (ownership of shares, powers, absence of encumbrances).
• Business assurances (financial reporting, taxes, employees, intellectual property, compliance, contracts, litigation, ecology, data).
• The period during which claims can be claimed (limitation period).
• Liability thresholds (de minimis, basket, cap)

Liabilities for Recovery of Loss (Indemnity)

• Specific known risks identified by due diligence are transferred to a special indemnity (tax, environmental, judicial).
• The term of indemnity is often longer than for conventional assurances, and is not always limited to the amount of cap.

Limitation of liability of the seller

• General liability ceiling (usually 10% to 100% of the price depending on the type of infringement).
• Exceptions to the limitations for fundamental assurances, indemnity, fraud.
• Exclusive remedy clause or admissibility of other claims.

Step 3. Determine the applicable law

The applicable law answers the question of what rules will be interpreted by the SPA and the performance of obligations will be assessed.

This has an impact on:

• Validity of price and earn-out agreements;
• the extent and interpretation of assurances and guarantees;
• the right to claim compensation and damages;
• The concept of “fraudulent misrepresentation”
• limitation period;
• the possibility of recovering indirect and net economic losses;
• the exclusion or limitation of liability.

In European international M&A transactions, the most commonly chosen law is English law, Swiss law or the law of the target company’s country (e.g. Germany, the Netherlands). An error in choosing the right at the start can devalue the protective mechanisms of the SPA.

Step 4. Selecting a dispute resolution mechanism

The SPA defines the jurisdiction and forum.

Options:

• International Arbitration (ICC, LCIA, DIS, Swiss Rules, VIAC, etc.)
• State Court (e.g., London Commercial Court, Amsterdam Court, Frankfurt Court).
• Mediation or examination prior to arbitration.

Arbitration is often used because arbitral awards are easier to enforce abroad, the process is confidential, and parties can choose arbitrators with expertise in M&A.

A state court can be effective if the target company and assets are located in the same EU country and it is important to obtain interim measures quickly.

Critical: The arbitration clause must correctly determine the place of arbitration, the rules, the number of arbitrators and the language. A negligent clause leads to disputes over the tribunal's competence and a waste of time.

Step 5. Risk allocation strategy: W&I insurance, escrow, earn-out

Modern international spas rarely rely on the personal responsibility of the seller.

Buyer Risk Management Tools:

• Warranty & Indemnity Insurance is an insurance policy that covers losses from breaches of assurances, often allowing the seller to exit “cleanly” with minimal personal liability.
• Escrow and holdback: The retention of a portion of the price for an agreed period to cover possible claims.
• Earn-out – part of the price depends on the future financial performance of the business; In case of dispute, it is important to provide a clear formula for calculation and a mechanism for resolving disagreements.
• Deferred consideration – Deferred consideration with the possibility of offsetting counterclaims.

The choice of combination depends on the risk profile, the balance of negotiating positions and market standards in the specific industry and EU jurisdiction.

Step 6. Integrating the results of Due Diligence

Due diligence report is not an application, but the basis of SPA.

Before finalizing the SPA, it is necessary to:

• the risks identified shall be reflected either in indemnity or in special assurances;
• adjust the price or provide a price adjustment mechanism;
• provide for pre-closing covenants (the seller’s obligation to conduct business as usual);
• Determine the risks that post-closing remediation requires.
• Confirm disclosure letter – a disclosure letter of the seller, which limits his liability for assurances.

A poorly prepared disclosure letter can completely devalue the assurance package. The buyer must carefully check the content of the disclosure and ensure that the information disclosed is sufficiently specific.

Step 7. Work out Post-Closing Commitments

The spa doesn't end in closure.

After closing, the parties may be related:

• post-closing price adjustment obligations;
• integration steps;
• non-compete and non-solicit restrictions (subject to strict EU regulations)
• maintaining confidentiality;
• assistance in the transition of contracts and permits;
• The mechanism for filing claims on assurances and indemnity.

Each of these obligations must be legally enforceable and backed by appropriate sanctions.

Common mistakes in the negotiation of international spa

1. Using a “standard” template without reference to the business of an SPA should reflect the specific risks of the target company, not just general wording.
2. Tax indemnity and price mechanics require a thorough understanding of local and international tax law.
3. A poorly written Material Adverse Change clause may result in the inability to exit the transaction if risks occur or, conversely, in the abuse of the buyer.
4. In complex businesses, some of the risks may appear after 2-4 years.
5. Mix warranty and indemnity claims Instruments have different legal nature and different statute of limitations.
6. Even a fully agreed SPA can be blocked by the regulator in the absence of the necessary approvals in the EU.
7. In the absence of clear rules for calculating and protecting against manipulation, earn-out is almost guaranteed to lead to a dispute.
8. Signing an SPA without a ready disclosure letter The Seller risks retaining responsibility for facts that could be honestly disclosed. The buyer risks last-minute disclosure and losing price and safety mechanisms.

Checklist: Check before signing a SPA

Before signing an SPA, you need to answer 15 questions:

1. Is the structure of the transaction and the share being acquired clear?
2. Is the base price and the adjustment mechanics fixed?
3. What are the critical and achievable closing conditions?
4. Is there a MAC clause and is it in line with market practices?
5. Is the package of assurances and guarantees sufficient for this business?
6. What are the known risks covered by the special indemnity?
7. Is the disclosure letter approved and verified?
8. Is the cap of responsibility, de minimis, basket, defined?
9. What is the time limit for filing claims and the applicable limitation period?
10. Is the applicable law English, EU law or other?
11. Arbitration or court, and where exactly?
12. W&I insurance: Is the policy issued and who bears the costs?
13. Are there any escrow, holdback, and earn-out mechanisms?
14. Are there any violations of sanctions, antitrust or FDI legislation?
15. What is the plan of action when claims arise after closing?

What a strong SPA strategy looks like

A strong strategy usually includes five levels:

1. Commercial Structure Determines price, payment schedule, withholding structure and earn-out.

2. Risk Allocation Package of Assurances, Indemnity, W&I Insurance, Limitation of Liability.

3. Legal Architecture Applicable law, jurisdiction, arbitration clause, disclosure mechanism.

4. Closing & Post-Closing Conditions precedent, pre-closing covenants, post-closing obligations and sanctions.

5. Enforcement Strategy: The real ability to obtain compensation, including through escrow, insurance policy and arbitral award, enforceable in the jurisdictions where the seller’s assets are located.

Without a fifth level, the first four may not be effective in the event of a dispute.

FAQ

Can English law be used for SPAs if the target company is located in the EU?

Yes, English law is widely applied in international M&A transactions, regardless of the location of the target company. This is permissible under the European conflict of laws rules (Rome I Regulation). However, it is necessary to check whether the transaction does not affect the mandatory rules of the country of the target.

Which is better: W&I insurance or personal liability of the seller?

There is no better universal option. A W&I policy is convenient when a seller (such as a fund) wants a clean exit and distributes funds to investors. Personal liability is more effective if the buyer wants to maintain maximum influence over the seller. Often used synthetic construction: The fundamental assurances and indemnity remain with the seller, the rest is covered by the insurer.

Does the MAC clause need to be in the European deal?

Usually. But the wording must be precisely agreed upon: What is considered a significant adverse change, what events are excluded (for example, general economic risks). In English law, such reservations are narrowly interpreted.

Can I agree on a payout without dispute?

The risk of a dispute cannot be completely excluded, but it can be significantly reduced. This requires: clear formula of calculation, the obligation of the buyer not to manipulate business decisions, the seller’s right to information and audit, express expertise or arbitration in case of disagreement.

What is the limitation period for SPA claims?

The time limit depends on the applicable law and contract. In English law, it is usually 6 years for general assurances, for indemnity it can be longer. In European law enforcement, the timeframe is often shorter (3-5 years). The contract can reduce the time for filing claims, but not cancel altogether.

Can the buyer withdraw from the transaction if the seller has breached the assurance before closing?

The SPA should explicitly provide for a walk-away right in the event of a breach if the breach is not healed and is substantial. Without such a condition, the buyer may be forced to close the transaction, leaving only the right to claim reimbursement.

Related services

• International M&A, Private Equity & Venture Capital
• Cross-Border Corporate Transactions & Structuring
• International Commercial Contracts
• International Arbitration & Cross-Border Disputes
• Due Diligence & International Regulatory Risk
• W&I Insurance and Transactional Risk Advisory

Related material

• How to Choose the Applicable Law and Arbitration in an International M&A Transaction
• Due Diligence in Europe: not to be missed
• Warranty & Indemnity Insurance: practical guide
• Assurances and guarantees under English law: protects the buyer
• Locked box vs. completion accounts: pick
• Structuring of the earn-out in international transactions
• FDI regulation in Europe: What the buyer needs to know
• How to Manage Post-Closed Risks in International M&A

Conclusion

The Share Purchase Agreement in an international M&A transaction is not just a legal formality, but a strategic map of cost and risk management for years to come.

Strong SPA is not built on abstract patterns, but on an accurate understanding of business, the results of due diligence, and the commercial balance of power. Key provisions should not only aim at closing the transaction, but also to protect the buyer when hidden problems appear – while giving the seller fair protection against unlimited claims.

In international M&A deals, the winner is not the one who signed the deal the quickest. The winner is the one who knows in advance how the contract will behave in the worst-case scenario, and already at the time of signing has a working plan to protect his position.