The share purchase agreement (“SPA”) is the last stage of any M&A negotiation and a culmination of the parties effort to reach the deal. The document outlines the key financial and commercial conditions, takes into account due diligence findings, and distributes the risks and upsides between the parties. A well- drafted SPA is central to any successful transaction.

Negotiation of the SPA can be a lengthy and intricate process as both sides of the transaction wish to secure the best terms and conditions. Hard-won com- promises often result in elaborate clauses being introduced in the SPA. As such, SPA is a very complex and sophisticated document that needs to be prepared with utmost care as even a single sentence may make the difference between transaction success or failure. Having an experienced advisor team on your side is vital to avoid the latter. A SPA usually covers a wide range of areas as it aims to address all material matters related to the target, deal structure, and more. The more complex the deal, the more robust the SPA can get.

Inexperienced vendors and acquirers are often staggered by a SPA‘s magnitude and level of detail. In this study, we address critical financial, tax, and legal considerations which should be taken into account during the negotiations. We have gathered information from M&A deals that Deloitte advised in recent years. In the selection of deals, we limited ourselves to acquisitions/disposals of targets located in the Czech Republic in order to provide a unique insight into the local M&A landscape. While talking about M&A it is difficult to avoid the topic of COVID-19. In 2020 the global economy was hit by the pandemic and it is expected to cause the deepest GDP decline since the Great Depression. As we write this, a number of countries are gently easing strict lockdown measures put in place to mitigate the impact of the pandemic. And so the strong backdrop which had been so conducive to deal doing in the Czech Republic – the record low unemployment, the liquid leverage markets, strong GDP growth – is no longer in place anywhere.

The Czech National Bank completely changed the course of its monetary policy: it tried to curb rising inflation with a rate hike in February, but interest rates were subsequently cut three times in under two months as a response to the macro shock, and the main policy rate stood at 0.25% at the time of the writing of this study. Private consumption, long a driver of Czech economic might, is expected to be struck by job losses and uncertainty, and this will knock a strong blow to the economy. The country’s exports will be heavily hit by severely reduced demand from the EU, and the Czech economy is forecast to shrink by 8% in 2020. While uncertainty persists and M&A activity cooled down in the first half of 2020, there are signs of positive momentum in Czech M&A.

Also, across the wider investment backdrop, we may see a fresh approach to deal structuring, with higher equity cushions and broader use of an earn-out mechanism which would enhance the price tag negotiation. Sellers and buyers may expect that use of MAC, force majeure, break up fees, data room disclosure repetition, earn-outs and hold-backs, insurance, a number of indemnities, and representations& warranties will become a subject of more intensive negotiations and part of the transaction documentation. We also expect that in the post-COVID-19 period, buyers will more often opt for closing accounts which are typically used in volatile economic environments.

This is our first edition. We aim to report on these matters periodically going forward and hope you will find this document useful.