How Purchase Price Adjustments Work In Share Purchase Agreements

In private mergers and acquisitions transactions in Ontario, it is customary for a share purchase agreement ("SPA") to include a mechanism that allows the purchase price to be estimated at closing and then adjusted after closing once the target company's final financial position is confirmed. This approach helps ensure that the buyer pays for the business based on its actual financial condition at closing, rather than estimates made earlier when the transaction documents were finalized.

Most transactions begin with an agreed enterprise value for the business. From that starting point, the SPA typically includes a set of adjustments that convert enterprise value into the final equity purchase price.