M&A Operations in Spain: Phases of a Transaction

Key points:

• Preliminary phase: This begins with the signing of a non-disclosure agreement (NDA) to protect information and a letter of intent (LOI) to establish the basic terms of the negotiation.
• Due diligence: This is an exhaustive audit of the target company to identify legal, tax, employment, and operational risks (contingencies) that could affect its value.
• Negotiation and signing: This culminates in the drafting of the sale and purchase agreement (SPA), which details the conditions, the price, and the warranties the seller provides to the buyer.
• Closing and post-closing: The transaction is executed (exchange of shares for the price), and subsequent administrative tasks are carried out, such as the integration of the company and notifications to registries.

Phase 1: Preparation and Preliminary Negotiation

Every company sale and purchase transaction begins with a contact and initial negotiation phase. The first formal step is the signing of a non-disclosure agreement (NDA). This document obliges the parties not to disclose sensitive information that will be exchanged, protecting both the seller and the potential buyer.

Subsequently, if discussions progress, a letter of intent (LOI) or a term sheet is usually signed. This document outlines the essential points of the future agreement: the price (or its calculation formula), the structure of the transaction, and the expected timelines. It is a key document that sets the tone for all subsequent negotiations.

Although the LOI is not usually legally binding in its entirety, it may contain clauses that are, such as an exclusivity period for negotiations. Vague wording at this stage can weaken your negotiating position or even create unintended obligations if the deal does not come to fruition.

Phase 2: Due Diligence or Legal Audit

Once the LOI is signed, the buyer begins the due diligence process. This consists of a detailed investigation of the company to be acquired to verify the information provided by the seller and, above all, to detect potential contingencies: hidden risks or liabilities that are not immediately apparent.

This audit is divided into several key areas:

• Legal and corporate: A review of the articles of association, minute books, contracts with customers and suppliers, and ongoing litigation.
• Tax: An analysis of compliance with tax obligations and a search for potential debts with Hacienda (the Spanish Tax Agency). The general rate of Impuesto sobre Sociedades (Corporation Tax) is 25%, and an error in past returns can represent a significant future burden.
• Employment: An examination of employment contracts, payments to the Seguridad Social (the Social Security system), and the existence of employee disputes.
• Regulatory and administrative: Verification that the company has all the necessary licences and permits to operate, a critical point in regulated sectors.

The findings of the due diligence are fundamental. They serve to confirm the company's value, adjust the purchase price, or, in the worst-case scenario, to decide to withdraw from the transaction if the risks identified are too high. The lawyers at the ARROWS International network in Spain have extensive experience in conducting these analyses.

Frequently Asked Questions about Due Diligence

1. How long does due diligence take? It depends on the complexity and size of the company, but a standard process usually lasts between four and eight weeks.

2. What happens if contingencies are found? The buyer can demand a price reduction (an adjustment), request that the seller assumes the cost of that contingency through a specific warranty in the contract, or even withdraw from the negotiation if the risk is unacceptable.

Phase 3: Negotiation and Signing of the Sale and Purchase Agreement (SPA)

With the results of the due diligence on the table, the parties negotiate the definitive document: the agreement for the sale and purchase of shares, known by its English acronym SPA (Share Purchase Agreement). This is the main contract that governs the entire operation.

The SPA not only establishes the final price and payment method. It also includes crucial clauses to protect the buyer, among which the following stand out:

• Representations and Warranties (Reps & Warranties): These are statements by the seller that confirm a series of facts about the company (e.g., that it has no hidden debts, that it is the owner of its assets, that it is up to date with its taxes). If these statements prove to be false, the buyer can claim for indemnification.
• Indemnities: These are specific clauses by which the seller agrees to compensate the buyer for a specific risk identified during due diligence (e.g., the cost of ongoing litigation).

Expert negotiation of these clauses is essential to minimise post-purchase risks.

Potential Problems	How ARROWS (office@arws.eu) can help
Ambiguous Letter of Intent (LOI): Creates disputes over whether it is binding, leading to litigation and wasted time.	Drafting and negotiation: We help you draft a clear LOI that protects your position and defines the rules of the game without creating unintended obligations.
Incomplete due diligence: Leads to the purchase of a company with hidden tax debts, penalties, or litigation that emerge after closing, generating unexpected costs.	Legal and tax audit: We conduct a thorough due diligence to identify contingencies and provide you with a clear report so you can make an informed decision.
Contract (SPA) with insufficient protection: Representations and warranties are weak or generic, preventing claims against the seller if problems arise after the purchase.	Contractual advice: We negotiate and draft a robust SPA with tailored protection clauses, ensuring your investment is secure.
Deadlock at closing: The transaction is delayed or fails due to non-fulfilment of conditions precedent (e.g., obtaining an administrative authorisation).	Transaction monitoring: We oversee the fulfilment of all pre-closing requirements and coordinate all parties to ensure a smooth execution.

Phase 4: Closing and Post-Closing

The closing is the moment when the transaction is finalised. Typically, the parties meet before a notary to sign the public deed of sale and purchase. In that act, the buyer pays the price, and the seller transfers ownership of the shares.

However, the work does not end there. The post-closing phase involves a series of important administrative tasks:

• Registering the change of ownership in the company's register of members.
• Notifying the change of director or sole shareholder to the Registro Mercantil (the Commercial Registry).
• Making the relevant communications to the authorities (e.g., to the Comisión Nacional de los Mercados y la Competencia (the National Commission for Markets and Competition) if the transaction exceeds certain thresholds).
• Initiating the process of operational, cultural, and technological integration of the acquired company into the buyer's structure.

Proper planning of this final phase is vital for the acquisition to generate the expected value.

Final Summary

M&A operations are complex processes with multiple phases, where an error in the initial stages can have serious financial consequences at the end. From a poorly drafted letter of intent to a superficial due diligence, the risks of litigation, cost overruns, or transaction failure are real. The key lies in specialist legal advice that anticipates problems and protects your interests at every step.

To ensure your sale and purchase transaction is executed with rigour and without surprises, you can rely on the experience of the lawyers at the ARROWS International network in Spain. The ARROWS International network in Madrid specialises in M&A and will guide you in negotiating and drafting all the necessary documents. Contact us at office@arws.eu to discuss your project.

Frequently Asked Questions about M&A Transactions in Spain

1. What is the difference between a share deal and an asset deal? In a share deal, the shares of the company are purchased, acquiring the business with all its assets, debts, and contingencies. In an asset deal, only specific assets are purchased (e.g., a factory, a brand), without assuming the general liabilities of the selling company. The choice depends on tax and business factors.

2. How long does an M&A process in Spain typically take? For an SME, a standard process can take between 3 and 9 months, from the first contacts to the final closing. Larger or more complex operations can take over a year.

3. What is an escrow account in an M&A transaction? It is a bank account controlled by an independent third party (usually a bank or a notary) where a portion of the purchase price is deposited. This amount is held for a period to ensure that the seller will be liable if any debts or problems covered by the contract's warranties arise.

4. What exactly are "representations and warranties"? They are a set of statements made by the seller in the sale and purchase agreement confirming the actual situation of the company as of a certain date (e.g., "the company is up to date with its payments to the Social Security system"). If one of these statements is false, the buyer is entitled to compensation.

5. Is it common for the purchase price to be adjusted after signing? Yes, it is very common. M&A contracts often include price adjustment clauses that modify the price based on the company's actual financial situation on the closing date (e.g., according to the level of net debt or working capital).

6. Can I withdraw from the transaction after signing the sale and purchase agreement (SPA)? Generally not, unless a negative condition precedent is met (e.g., failure to obtain a mandatory administrative authorisation) or the seller has committed a material breach of the contract. Withdrawing without just cause would lead to a claim for damages.

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Disclaimer

Official sources reviewed

BOE consolidated legislation cited, the Spanish Tax Agency and, depending on the subject, the College of Registrars and applicable regional and municipal rules. Editorial review completed on 5 October 2026.

Disclaimer: The information contained in this article is for general informational purposes only and serves as basic guidance on the subject according to the legal situation as of 2026. Although we take the utmost care to ensure the accuracy of the content, regulations and their interpretation evolve over time. ARROWS advokátní kancelář, the head of the ARROWS International network, is registered with the Colegio de Abogados de la República Checa (the Czech Bar Association), its supervisory body, and holds professional indemnity insurance with a limit of CZK 400,000,000. To verify the current regulations and their application to your specific situation, please contact the ARROWS International network in Spain directly (office@arws.eu). We assume no liability for damages arising from the use of the information in this article without prior individual legal consultation.