SPA accounting reviews to seal the deal

As deal structures become more complex and post-closing disputes more frequent, the role of accounting professionals in shaping the sale and purchase agreement (SPA) has never been more critical. Precise financial definitions and carefully negotiated terms can be the difference between a smooth closing and a costly legal battle.

A sale and purchase agreement (SPA)—also known as a purchase and sale agreement or an agreement for purchase and sale—is a legally binding contract outlining the terms and conditions for the sale of assets, such as real estate or company stock. It specifies key elements like transaction price, payment terms and closing procedures, while also addressing conditions and contingencies that must be met prior to closing. Importantly, it includes clauses designed to protect both parties in the event of a dispute.

As seen in recent years, several high-profile post-acquisition disputes have stemmed from disagreements over SPA language. One notable example is a recent acquisition of a large regional grocery store operator, where a dispute led to a prolonged legal battle that ultimately required the seller to pay the buyer $77 million—despite having sold the business. In that case, and others like it, insufficient attention to the accounting provisions in the SPA led to commercially unreasonable outcomes, with arbitrators forced to abide by the “four corners”—the written text—of the agreement.

Accounting advisors are not merely supporting players—they are essential to protecting and maximizing deal value through well-crafted SPA language. While legal teams typically lead the drafting process, they are not certified public accountants and may overlook seemingly minor changes to key financial definitions that carry significant accounting consequences. These nuances—often buried in schedules or footnotes—can materially shift outcomes at closing or in post-closing true-ups.

Once the agreement is signed, the parties are bound by its terms, and even commercially unreasonable results may be enforced if the language supports them. This reality underscores the importance of integrating accounting experience early and often in SPA negotiations, as well as having the support of a dedicated SPA advisory team that can work with the deal team to optimize outcomes.

Closing statements

As demonstrated by the grocery store operator transaction, the inclusion or exclusion of just a few words in key SPA definitions can lead to millions of dollars in post-closing purchase price adjustments. According to the 2025 SRS Acquiom M&A Deal Terms Study, more than 90% of private-target deals include post-closing adjustment mechanisms. Yet, during this process, buyers and sellers rarely align perfectly on how to quantify these adjustments. Instead, ambiguity around the application of accounting principles and defined terms often leads to differing interpretations, with each party potentially seeking to secure additional value.

Traditionally, closing statements have been governed by either generally accepted accounting principles (GAAP) alone or GAAP applied in a manner consistent with the target’s historical accounting practices. More recently, however, SPAs increasingly include bespoke accounting policies that prescribe the treatment of certain GAAP exceptions, nonrecurring transactions or judgmental areas such as accounts receivable and inventory reserves. These tailored policies should be closely analyzed alongside how the working capital target—or “peg”—was originally calculated.

To further reduce ambiguity, parties should include a detailed illustrative working capital exhibit that clearly maps trial balance accounts to what is included or excluded from current assets and liabilities.

Additional key considerations include:

• Indebtedness: Clarify treatment of payroll liabilities, customer deposits and deferred revenue, aged accounts payable, leases, and other obligations.
• Cash: Address how to treat deposits in transit, outstanding checks, credit card receivables and restricted cash.
• Transaction expenses: Define treatment of professional fees, change-of-control payments, transaction bonuses, and directors and officers insurance premiums.
• Dispute resolution: Establish clear procedures, including arbiter selection, thresholds for materiality, cost allocation and timing considerations.

A well-structured closing statement framework, supported by thoughtful and precise language, is critical to avoiding disputes and preserving post-close deal value.

Earnouts

As we enter the second half of 2025—a year marked by ongoing concerns around trade policy, recession risks, and broader geopolitical and economic uncertainty—earnouts will remain a popular tool for bridging valuation gaps between buyers and sellers. With significant dry powder still on the sidelines, earnouts allow parties to balance risk by deferring a portion of the purchase price, thereby facilitating transactions in uncertain markets.

At the same time, earnouts agreed to in prior years are now coming due in a market environment that may differ meaningfully from the one contemplated at signing. This mismatch can lead to a lower-than-expected earnout payout rate and, as a result, an increase in related disputes.

Earnouts are particularly prone to disputes because they often rely on financial metrics such as adjusted EBITDA—calculations that are highly susceptible to differing interpretations, especially regarding add-backs. As with closing statements, a best practice is to include an illustrative exhibit detailing the methodology, key inputs and applicable accounting principles. Commonly disputed language such as “recurring” versus “one-time” revenue or “unusual, extraordinary or nonrecurring expenses” should be defined clearly to reduce ambiguity.

Additional factors worth addressing in the agreement include changes in control prior to the conclusion of the earnout period, treatment of bolt-on transactions subsequent to the closing date, and language to protect post-closing accounting decisions made by the buyer that affect the performance of the acquired entity.

Sellers may also consider protective language that limits the buyer’s ability to take actions post-close that materially affect the likelihood of achieving an earnout. Thoughtfully negotiated earnout provisions with clear definitions and guardrails can significantly reduce the risk of disputes and better align incentives between parties.

Representations and warranties

Nearly all mergers and acquisitions include seller representations attesting to the accuracy of the acquired company’s historical financial statements, typically prepared in accordance with GAAP or another applicable accounting standard. This representation is especially important for buyers, as transaction values are often based on a multiple of EBITDA. In the event of a breach, buyers frequently apply that same multiple when calculating damages and asserting claims under representation and warranty (R&W) provisions.

In addition to the financial statement representation, several other key representations warrant close attention during SPA negotiations, including:

• Undisclosed liabilities
• Top customers and suppliers
• Accounts receivable
• Inventory

These representations are often the subject of intense negotiation and will be under heavy scrutiny by any R&W insurance provider. It is increasingly important for both buyers and sellers to ensure that representations are clearly drafted and that all related disclosures are complete and accurate. Careful review and precise drafting help reduce the risk of post-closing disputes and strengthen the enforceability of the protections negotiated during the deal.