For a SME leader, a sale or acquisition operation is never just a “simple business sale.” Behind the price, the timeline, and the commercial negotiation lies a set of complex legal mechanisms that determine the real value of the transaction, the security of both the seller and the buyer, and the sustainability of the business after closing. Many leaders only grasp these stakes once the letter of intent is signed and due diligence is initiated, while some risks could have been mitigated beforehand.
M&A: 7 Typical Legal Pitfalls in a Sale or Acquisition Operation
In practice, each M&A operation is unique, whether it involves a share deal (sale of shares) or an asset deal (sale of assets). However, the same legal pitfalls frequently arise, causing loss of time, value, or, in extreme cases, leading to the failure of the transaction. The following seven pitfalls provide an overview of the major points of vigilance for a SME leader or shareholder. From the initial reflections on a sale or acquisition operation, it is useful to identify these risks to better anticipate them.
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Pitfall #1 – Signing a Letter of Intent that is Too Vague (or Too Binding)
The letter of intent often marks the true starting point of a sale or acquisition operation. When its drafting is imprecise, mixing purely indicative clauses with already binding commitments, the leader exposes themselves to misunderstandings and disputes. A poorly framed exclusivity, an unrealistic timeline, or implicit obligations can upset the balance of power from the very beginning of discussions.
Conversely, a letter of intent that is too precise or too binding can constrain the seller or buyer in the subsequent negotiation of the SPA (Share Purchase Agreement) or asset transfer documents. The right reflex is to clearly clarify what pertains to intention and what already creates legal obligations, paying particular attention to confidentiality clauses, exclusivity, break-up fees, or non-solicitation.
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Pitfall #2 – Underestimating Legal and Contractual Due Diligence
Due diligence is not limited to a review of accounts: legally, it aims to identify risks related to key contracts, regulatory compliance, and the intangible assets of the target company. When this step is approached too quickly, certain elements may slip under the radar: change of control clauses in major contracts, dependence on a few strategic clients, complex commercial leases, essential software licenses that are poorly documented.
For the seller, anticipating these points in advance helps limit unpleasant surprises, discussions about price, or requests for additional guarantees. For the buyer, a structured analysis of contracts and associated risks is essential to assess the true value of the target, calibrate asset and liability guarantees, and make an informed decision on whether to proceed with the operation.
Pitfall #3 – Neglecting Title and Governance Issues
An inaccurate cap table, forgotten shareholder agreements, or unidentified special rights can create real blockages at the time of the sale. This is particularly true when minority shareholders have veto rights, joint exit rights, or preemption rights that have not been properly taken into account in the structuring of the operation.
Before starting a sale or acquisition process, it is therefore prudent to verify the chain of ownership of the titles, the existence of shareholder agreements, BSA, BSPCE, or other instruments granting access to capital, as well as the statutory clauses provided in the event of a change of control. This mapping helps avoid “phantom shareholders” that emerge at the end of the process and can delay or prevent the transaction.
Pitfall #4 – Mismanaging Asset and Liability Guarantees
The asset and liability guarantee is one of the central tools for securing an M&A operation. If poorly negotiated or poorly drafted, it can become a significant source of post-closing disputes. Sensitive points include the scope of declarations, caps and floors for triggering, the duration of the guarantee, exclusions, and the distribution of risks between the parties.
It is also possible, in certain cases, to use a W&I (Warranty & Indemnity) insurance to transfer part of the risk to an insurer, but this solution requires prior preparation and very rigorous contractual documentation. Again, specialized support helps to calibrate the guarantee clauses according to the specifics of the company and the profile of the parties.
Pitfall #5 – Forgetting Intellectual Property and Data
In many sectors, the value of a SME largely relies on its intangible assets: software, brands, databases, know-how, or content. If the ownership of these rights is not clearly established – for example, when developments have been carried out by external providers without adequate transfer clauses – the buyer may find themselves with assets that are difficult to exploit safely.
The issues related to personal data, cybersecurity, and compliance with GDPR should not be minimized either. A major non-compliance discovered during due diligence can lead to a renegotiation of the price, strengthened suspensive conditions, or even the abandonment of the acquisition. Mapping intellectual property assets and data flows in advance helps reduce these risks and further enhance the company’s value.
Pitfall #6 – Ignoring Social Impact and Employment Contracts
A sale or acquisition operation always has consequences for employees: transfer of contracts, potential reorganization, evolution of key functions, or governance changes. Non-compete clauses, individual or collective benefits, and existing company or customary agreements are all parameters to consider from the preparation of the deal.
Ignoring these aspects can lead to internal tensions, unanticipated departures, or even labor disputes that may affect the company’s attractiveness and the stability of the business after the acquisition. Joint work between M&A advisors, HR teams, and, where applicable, employee representatives helps anticipate these social impacts and integrate them into the operation’s documentation.
Pitfall #7 – Not Anticipating Post-Acquisition Integration in the Documentation
Beyond the signature, the success of an M&A operation also hinges on the integration phase. If the transaction documents do not clearly provide for the continuity of key functions, the presence commitments of executives, earn-out mechanisms, or transitional governance, the parties may find themselves with divergent expectations once closing is completed.
Imprecise or overly general clauses on these subjects increase the risk of misunderstandings, decision-making blockages, or discrepancies regarding performance that condition a price adjustment. Integrating the question of post-closing early in the negotiation of the SPA and related agreements helps secure the common trajectory and align interests over time.
Transforming Pitfalls into Value Levers
For a SME, a sale or acquisition operation often represents a key moment in the life of the company and the leader. When well-prepared, it allows for transforming legal vigilance points into real value levers: securing the price, better visibility of risks, continuity of activity, and eased relationships between the parties.