Key Areas Covered in an SPA Review
An effective review examines the agreement as an integrated transaction document rather than reviewing individual clauses in isolation. Particular attention is given to provisions that can change the economic outcome or create obligations after closing.
- Purchase price: Review the stated consideration, payment structure, adjustments, escrow, earn-outs, and other economic terms.
- Working capital: Assess definitions, target calculations, excluded items, and mechanisms used for purchase price adjustments.
- Representations and warranties: Examine financial, tax, operational, regulatory, and business-related statements made by the parties.
- Covenants: Review restrictions and obligations applicable between signing and closing and after completion.
- Indemnification: Evaluate caps, baskets, survival periods, exclusions, procedures, and allocation of potential liabilities.
- Closing conditions: Confirm that required approvals, consents, filings, and other completion requirements are clearly established.
Financial and Accounting Review
The financial review focuses on whether the SPA's definitions and mechanisms can be applied consistently to the underlying financial records. Terms such as cash, debt, working capital, transaction expenses, indebtedness, and leakage should be sufficiently precise to reduce ambiguity when the closing accounts or adjustment statements are prepared.
A P L Review can help connect the agreement's financial representations with historical profitability and reported operating results. A Coding Review can also support transaction analysis where accounting classifications affect working capital, expenses, debt-like items, or other purchase price adjustments.
The agreement should also align with the company's accounting structure. Reviewing the chart of accounts alongside relevant SPA definitions can help determine whether contractual categories can be reconciled consistently to the general ledger and financial reporting records.
Tax and Regulatory Considerations
Tax provisions can materially influence transaction economics. An SPA Review may examine responsibility for pre-closing and post-closing taxes, tax indemnities, filing obligations, tax refunds, withholding requirements, and allocation of tax liabilities.
Indirect tax provisions may require particular attention where the transaction involves multiple jurisdictions. Reviewing sales tax treatment alongside jurisdiction rules, exemptions, nexus considerations, VAT or GST obligations, and potential overcharges can help connect contractual tax provisions with the company's broader financial and compliance position.
Procurement, Vendor, and Contract Implications
Transaction diligence may extend beyond the SPA itself to contracts and operational commitments that influence the value or continuity of the acquired business. Procurement arrangements, supplier obligations, approvals, and outstanding commitments can affect working capital forecasts and post-closing operations.
For example, reviewing a purchase order environment can help identify open commitments, supplier obligations, approval requirements, and spending arrangements that may need to be reflected in transaction analysis. A Contract Review can further connect material commercial agreements with representations, change-of-control provisions, termination rights, and obligations disclosed during diligence.
Where vendor-management activity contributes supporting evidence, Audit Trails can provide a chronological record of actions performed by humans or AI, helping transaction teams maintain transparency and support review of vendor-related information.
SPA Review Process
A practical SPA Review normally begins by identifying the transaction structure, purchase price mechanics, key definitions, and allocation of responsibilities. Reviewers then map those provisions to financial statements, diligence findings, tax information, operational records, and supporting schedules.
- Identify material provisions: Prioritize clauses that directly affect transaction value, liability allocation, or closing requirements.
- Reconcile definitions: Compare contractual definitions with accounting records and transaction models.
- Test financial mechanics: Model working capital adjustments, earn-outs, escrow arrangements, and other variable consideration.
- Review exceptions: Compare representations and warranties against identified diligence findings and disclosed matters.
- Document issues: Record interpretation points, required amendments, open questions, and responsible stakeholders.
- Perform final consistency review: Confirm that schedules, definitions, dates, amounts, and cross-references remain aligned before execution.
Business Impact and Best Practices
A well-structured SPA Review helps transaction teams translate contractual language into measurable financial and operational consequences. It can improve the connection between legal drafting, financial modeling, accounting treatment, tax planning, and post-closing execution.
Best practice is to maintain a single transaction checklist covering economic terms, financial definitions, tax provisions, representations, indemnities, closing conditions, and supporting schedules. Material assumptions should be reconciled to source documentation, while ambiguous definitions should be resolved before they become relevant to a closing adjustment or post-closing dispute.
The review should also distinguish between provisions that affect the purchase price directly and those that primarily allocate risk between buyer and seller. This distinction helps management focus negotiation efforts on clauses with the greatest impact on financial performance and transaction value.
Summary
SPA Review provides a systematic assessment of a Share Purchase Agreement's financial, legal, tax, and operational provisions before transaction completion. By connecting contractual terms with accounting records, diligence findings, transaction models, and business obligations, it helps stakeholders understand purchase price mechanics, liability allocation, closing requirements, and post-closing financial implications.