Make the Deal

CHAPTER 4 Architecture of the Acquisition Agreement

Key Elements of the Acquisition Agreement

Acquisition agreements are made up of several core building blocks or components. Each has its own function in the agreement, and each interacts with the others to build higher-order structures. In a typical acquisition agreement each is segregated into its own article. Complex deal components—such as financing contingencies and breakup fees—are implemented through multiple provisions that cut across several different parts of the agreement.

The first part of this chapter provides an overview of those key components and how they work together. It shows all pieces of the puzzle at once. The second part of this chapter compares and contrasts how they operate and when they are most or least useful in a deal. After that, each component is discussed in detail in its own chapter.

Structure

The acquisition structure is defined in an initial section of the acquisition agreement.¹ At the most basic level, deals take one of the following forms:

• A stock sale (or a tender offer in public company deals);
• A merger; or
• An asset sale.

In a stock sale, the buyer acquires the stock of the target company. If the target is a small, privately held company or a wholly owned subsidiary of a larger company, the stock can be purchased in a simple, private sale directly from the shareholders. If the target is a public company and its shares are widely held, the stock sale would take the form of a public ...