The share purchase agreement — the SPA — is widely regarded as the most complex and time-consuming document in an M&A transaction. Weeks are spent negotiating warranty catalogues, indemnities, material adverse change clauses, and liability caps. What is easy to lose sight of during this process is that the substantive negotiations have already taken place long before the lawyers begin — and the SPA negotiation is frequently little more than their echo.
What Is Actually Being Negotiated in the SPA
On the surface, SPA negotiations concern legal risk allocation: who bears liability for undiscovered obligations, how far does the seller's tax indemnity extend, what representations does the target's management give about the business? Beneath these questions lies a different one: how much trust exists between buyer and seller, and how effectively did their advisors resolve open commercial issues during due diligence before they migrated into the contract?
Experienced transaction lawyers know that an SPA negotiation that stretches over months is almost always a symptom of commercial or personal differences from earlier phases of the process that were never properly resolved. The buyer who articulated an unrealistic warranty expectation in the offer phase is now fighting to preserve that position in the SPA — even though both parties already know it is not achievable. This costs both sides considerable time and money without creating any genuine value.
Risk Allocation as a Commercial Decision
The distribution of risk in the SPA is not a purely legal question — it is a commercial one. When a buyer demands extensive warranties, they are signalling that they do not fully trust the due diligence process or the seller's representations. When a seller resists providing warranties, they are signalling either negotiating strength or uncertainty about the quality of their own data. The best SPA negotiations are those in which these fundamental questions have been answered before the legal work begins — through open dialogue between the parties, through rigorous due diligence, and through advisors who understand the difference between a commercially relevant risk and a purely hypothetical one.
The SPA is not primarily a risk mitigation instrument — it is a trust document. It records what both parties have agreed about the business, its condition, and their shared expectations for the future. Where trust is present, the SPA is short. Where trust is absent, the SPA is long — and yet still no substitute for it.
Implications for Process Design
For buyers and sellers, this means investing energy not primarily in the length of the warranty schedule but in the quality of due diligence and in open communication about discovered risks. An honest approach to due diligence findings — combined with a realistic view of the liability caps that comparable transactions typically bear — substantially shortens SPA negotiations. What the parties gain is not only time and money: it is the foundation for a functional working relationship after closing.