Stock purchase agreements: the challenge of generating value from an adequate contractual structure

Abstract

Stock purchase and sale agreements are transactions in which, like any other transfer of assets in exchange for a consideration, the seller will try to obtain the highest possible economic benefit, while the buyer will try to pay the lowest price. At the same time, both parties will try to reduce their risks and ensure that they are compensated for any possible damage they may suffer. This type of transaction is an opportunity for lawyers, who will be in charge of generating value and assuming the role of transaction engineer, on a legal, economic and common sense basis.

As for the structure of the deal, it could be said that it consists of differentiated stages in order to reduce risks and potential future conflicts: a rational selection of the counterparty, a confidentiality and exclusivity agreement, drafting of a letter of intent (or other similar, preliminary documents), a thorough due diligence process accompanied by the issuance representations and warranties by the seller and finally the drafting, negotiation and implementation of a stock purchase agreement that will seek to align the incentives of the parties and maximize the value of the transaction for them.

Another important point to highlight is the price modality to be selected, given that the object of the contract is of a highly uncertain value. A contingent price may be determined, adjusting it to an accounting parameter that is representative of the financial and equity situation of the company whose shares are sold; or a deferred price in installments.