These include:
Buyers and sellers have been checking the sale and purchase agreements (SPAs) that they have already signed and have been very carefully considering the SPAs that they are about to sign. Here are some considerations that may be top of mind in the current circumstances.
For many deals, the price for the asset/company is fixed on a past date (a locked box date or retroactive effective date). In this case, there is a risk of value fluctuations between that date and the date of the actual closing of the deal. This can be significant where oil and gas prices or production have significantly decreased since that date. The parties may still have to close at the original price in these circumstances. If on the other hand the price is calculated based on value at the closing date, then the parties may be better protected against any sudden increase or decrease in oil and gas prices or production levels. Deferred price mechanisms based on future performance might also be helpful. We think it is likely that we will see parties being more creative with pricing mechanisms in future deals, with both parties looking to mitigate their risks.
SPAs often include provisions enabling one or other of the parties to terminate the SPA between signing and closing if certain circumstances arise. Generally, the objective of the seller is to achieve as much certainty as possible. Therefore, a seller will only accept very limited rights for the buyer to terminate the SPA before closing. On the other hand, the buyer will generally not want to be bound into a deal that is not as good as was expected when the SPA was signed.
Some of the issues that are front of mind at the moment (in addition to the key problem of actually valuing an asset) include: