The SPA is written by lawyers, but it is the business owner who signs it. We explain the ten key clauses from the seller's perspective: what they mean, what is negotiable and what is standard.
The Share Purchase Agreement — the SPA — is the document that generates the most respect, and frequently the most anxiety, among first-time sellers. Understandably: it typically runs to 50–150 pages, combines Anglo-Saxon legal terminology with Spanish commercial law, and creates obligations that may extend for years after the money has changed hands.
Most SPA guides are written for lawyers or for buyers. For the broader context of selling your company, see our dedicated hub. This one is written for the business owner who is about to sign as the seller.
It is not a substitute for specialist legal advice — and if you are considering a significant transaction, that advice is non-negotiable — but it will give you the knowledge to understand what you are negotiating before you walk into any meeting.
Representations and warranties are the most extensive and most important part of the SPA for the seller. They are formal statements that the seller makes about the state of the business at closing.
Statements such as: “The financial information provided is accurate and complete”, “There are no pending disputes not previously disclosed”, “The company owns all assets appearing on its balance sheet”, “Customer contracts are valid and in force”.
What they mean for the seller: If any of these statements turns out to be false or inaccurate — even unintentionally — the seller may be liable to compensate the buyer for resulting losses.
What is negotiable: The scope and depth of the warranties. An aggressive buyer will push for broad, unqualified representations. The seller must ensure there is a formal disclosure process — typically a disclosure letter — that allows all known situations that could constitute a breach to be formally carved out and documented before closing.
What is standard: A Spanish middle-market SPA typically includes 20–40 categorised representations covering financial position, tax, employment, intellectual property, contracts and environmental matters.
The price negotiated at LOI stage is based on financial statements at a particular reference date. But between that date and actual closing — often several months later — the business will have generated or consumed cash, repaid or drawn debt, and working capital will have fluctuated.
Two main mechanisms address this:
Completion Accounts. The final price is calculated using a financial snapshot of the business at the exact closing date. More precise but more complex: it requires preparing a closing balance sheet, auditing it and resolving discrepancies in a process that may run for months after the money has changed hands.
Locked Box. A reference date in the past (usually the date of the latest audited accounts) is fixed, and the price is calculated on that basis. Economic risk of the business passes to the buyer from that date. Simpler, but requires restrictions on cash movements between the reference date and closing (to prevent “leakage”).
Recommendation for sellers: The locked box mechanism is generally more favourable for sellers, as it eliminates post-closing price uncertainty. But it requires high-quality, audited reference accounts.
Representations and warranties are of limited value without a mechanism defining when and how much the buyer can claim if a breach occurs.
The basket (or de minimis). Defines the threshold below which the buyer cannot bring a claim:
The liability cap. Sets the maximum amount the seller can owe for warranty breaches. Standard practice in Spanish middle-market M&A: 100% of the purchase price for fundamental warranties (title to shares, legal capacity, tax); 20–30% for general business warranties.
What is negotiable: Both the basket threshold and the cap. Sellers well advised can often negotiate a cap of 15–25% for general warranties with an 18–24 month limitation period.
The buyer retains a portion of the purchase price — typically 10–20% — in a blocked account managed by a third party (a financial institution or notary) for an agreed period, usually 12–24 months after closing.
Escrow provides the buyer with comfort that the seller can meet indemnification obligations if they arise during the warranty period. At the end of the period, if there are no outstanding claims, the escrow is released to the seller.
What the seller negotiates:
An earn-out links part of the purchase price to the achievement of agreed performance targets in the business (typically EBITDA, revenue or net profit) over one to three years post-closing.
Earn-outs typically appear when buyer and seller cannot agree on valuation: the buyer is unwilling to pay full price today, but is willing to do so if the business proves it can achieve the seller’s projected performance.
What the seller must negotiate:
For a more detailed treatment, see our article on when earn-outs work and when they fail.
Conditions precedent are requirements that must be satisfied before the transaction can close. Until all are met, there is no share transfer and no payment.
Common conditions precedent include: merger control approval (if applicable), foreign investment authorisation (if applicable), absence of material adverse change in the business before closing, obtaining consents from customers or suppliers with change-of-control termination rights, and in some cases the buyer’s bank financing approval.
What the seller must watch: That conditions are not too broad or too subjective. An overly wide MAC clause (see below) can give the buyer grounds to walk away from the transaction on the basis of minor business fluctuations.
The MAC clause allows the buyer to withdraw from the transaction — without penalty — if a significant deterioration in the business’s situation or prospects occurs before closing.
This clause was heavily litigated during the 2020 pandemic, when many buyers attempted to invoke it to exit signed deals. Courts on both sides of the Atlantic interpreted MAC clauses very strictly, requiring a genuine, sustained and significant deterioration.
What the seller negotiates: A narrow definition of what constitutes a MAC. Exclusions should include: general market conditions, legislative changes, interest rate or currency fluctuations, and any situation known to the buyer at the time of signing.
The non-compete covenant prohibits the seller from engaging in activities that compete with the sold business for a defined period, in a defined geography and activity scope.
In Spain, post-contractual non-compete covenants are valid but must meet three conditions: a legitimate business interest to protect, reasonable compensation (or a price that already reflects it), and reasonable scope and duration.
Standard in the Spanish middle-market: Two to three years’ duration; geographic scope: Spain (or the specific market in which the business operates); activity scope: the same sector as the sold business.
What the seller negotiates: Explicit economic compensation if not already embedded in the price, the ability to maintain minority stakes in non-competing companies, and carve-outs for academic or advisory activities that are not competitive.
Beyond representations and warranties, the SPA may include specific personal guarantees from the seller: a personal guarantee securing indemnification payments, first-demand guarantees, or specific guarantees over known tax, litigation or employment contingencies.
What the seller must understand: Personal guarantees are the most onerous mechanism for sellers and require particularly careful negotiation. In transactions where the seller receives the full price at closing, escrow is usually sufficient security. Additional personal guarantees should be justified by specific, identified contingencies and must be limited in amount and duration.
If the seller is to remain with the business post-closing — which is common to facilitate transition — the SPA must govern that arrangement: duration, remuneration, role and how it interacts with any earn-out.
What the seller negotiates: A short and well-defined transition period with a clear exit date. Reasonable remuneration during that period. And crucially: if an earn-out exists, it should not be conditional on the seller’s full-time presence. Tying earn-out achievement to the seller remaining in the business is a disguised retention mechanism that creates serious conflicts of interest.
We believe in fair contracts for both parties. An SPA that is excessively favourable to the buyer may close the deal, but it creates a resentful seller who will not cooperate effectively during the transition — and the transition is, in large measure, what determines the success of the investment.
Our approach: reasonable representations with well-documented disclosure, proportionate escrow of limited duration, earn-outs with clear metrics and guaranteed operational independence, and reasonable non-compete covenants with appropriate compensation.
If you are in a sale process or are about to receive an SPA for review, we invite you to get in touch. A review of the main terms before negotiation begins can save time, money and unnecessary stress.
See also: Due diligence in practice: what we really look at and Earn-outs: when they work and when they fail.
By Blue Mountain Capital
By Blue Mountain Capital
By Blue Mountain Capital
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