Topic 90
Purchase and Sale Agreement
Topic 90 introduces the purchase and sale agreement (PSA). This topic summarizes the contents, with Topic 91 exploring them in more detail.
INTRODUCTION TO THE PSA
- The PSA (as typically referred to in asset purchase agreements) captures all the commercial and financial implications of the deal in a legally binding and enforceable framework. In a purchase of stock transaction the governing agreement is commonly referred to as the stock purchase agreement (SPA).
- The buyer typically controls the drafting of the PSA, except in an auction, where the seller's investment bank presents a draft PSA for comment as part of the auction process.
- The PSA is the definitive legally binding and enforceable agreement that:
- Captures all the elements of the deal as agreed in the letter of intent (LOI) and as negotiated otherwise in the preparation of the PSA.
- Obligates each party to do certain things and behave in certain ways up to (and possibly after) the closing.
- Allocates the economic impact of certain known or unknown risks associated with the seller's business.
- Governs what happens up to and after the closing, depending on certain conditions that may arise before or after the closing.
- The PSA captures the result of the price negotiation as well as the rest of the consideration terms in a deal (e.g., the allocation of risk).
- The risk allocations reflected in the terms of the PSA capture the same risk parameters discussed in Topic 26: time, impact, breadth ...
