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What’s An Asset Purchase Agreement?

On Behalf of | Oct 30, 2023 | BUSINESS & COMMERCIAL LAW - Business & Commercial Law

Asset purchase agreements, commonly known as APAs, are the backbone of any business acquisition. These agreements can either make or break the entire deal. 

It’s crucial to understand what an asset purchase agreement entails, what it covers and what to watch out for. Getting the APA right is all about securing the future success of the business you’re buying or selling.

Asset purchase agreement basics

An asset purchase agreement includes everything from the purchase price and payment terms to the list of intellectual and physical assets. It may outline the transition of employees. 

The APA will specify which assets are included in the sale and which liabilities the buyer will assume. This is a crucial aspect to protect buyers from inheriting unknown or undisclosed liabilities.

Contingencies and conditions

An APA isn’t a done deal until all the contingencies or conditions precedent are met. These contingencies can range from the mundane, such as the buyer securing adequate financing, to the more complex, like the seller resolving all pending legal issues before the sale. If the contingencies are not met within the stipulated time, either party may have the right to walk away from the deal without legal consequences.

Representations and warranties

For sellers, the APA could include affirmations that they own the assets being sold free and clear of any encumbrances. For buyers, representations could consist of the legality of the purchase, such as compliance with antitrust laws. These serve as contractual assurances and form the basis for legal recourse if the other party fails to meet their commitments.

Closing and post-closing covenants

Closing and post-closing covenants are agreements that extend beyond the sale date. They can include non-compete clauses, confidentiality agreements and terms for the adjustment of the purchase price based on future performance. 

Understanding the comprehensive APA can help you protect your company. Having someone familiar with APAs review them with you is beneficial.