Reading an Asset Purchase Agreement: A Searcher's Checklist

A typical Asset Purchase Agreement (APA) on an SMB acquisition runs 40 to 80 pages plus schedules. Most of the language is standard. A small portion of it decides whether price changes at close, whether you recover anything if the seller's representations are wrong, and whether third-party consents can hold the deal hostage.

This checklist is built for self-funded searchers reading an APA before the next attorney call. It is legal information, not legal advice. Use it to organize the first pass, then bring the marked-up issues to transaction counsel.

Section 1: Purchase and Sale of Assets

Start by confirming exactly what the buyer is acquiring. The purchased-assets section should match the business you underwrote: equipment, inventory, contracts, permits, trade names, phone numbers, domain names, customer lists, intellectual property, records, and goodwill.

Watch for language that says assets are transferred only if listed on a schedule. If the operating assets are schedule-dependent, the disclosure schedule becomes the deal. Missing vehicles, software accounts, phone lines, email domains, or assignable contracts can create a closing scramble.

Section 2: Excluded Assets and Assumed Liabilities

The excluded-assets section tells you what stays with the seller. Cash, personal vehicles, owner receivables, excluded bank accounts, and unrelated assets are common. The danger is an excluded asset that is actually needed to operate the business after close.

Assumed liabilities deserve the same attention. In an asset deal, the buyer usually wants a narrow list of assumed obligations and a broad seller retention of pre-closing liabilities. Read for taxes, employee claims, warranty obligations, litigation, trade payables, debt, environmental obligations, and customer deposits.

Section 3: Purchase Price, Allocation, and Working Capital

The purchase-price section should match the LOI and the financing package. Confirm the cash at close, seller note, earnout, holdback, escrow, rollover equity, and any adjustment mechanics.

Allocation matters because it affects tax economics. The APA should state whether the parties will use a mutually agreed allocation schedule and whether both sides must file consistently with it. If the allocation is blank, that is an attorney and tax-advisor item before signing.

Working capital is often where the price quietly moves. Confirm the target amount, included and excluded accounts, measurement date, dispute process, sample calculation, and whether the peg reflects normal operating seasonality. A vague target can turn into a post-close fight.

Ask these questions:

• Does the APA define working capital by the same methodology used in diligence?
• Are cash, debt, tax liabilities, customer deposits, and transaction expenses treated consistently?
• Is there a neutral accountant or clear dispute process if the final statement is challenged?
• Does the adjustment work both ways, or only against the buyer?

Section 4: Escrow, Holdback, and Closing Funds Flow

Escrow is the practical recovery source if a seller breach appears after closing. The APA should state the escrow amount, duration, permitted claims, release process, and whether escrow is the buyer's exclusive recovery source.

Compare the escrow to the indemnity cap. If the cap is higher than escrow but the seller will have limited assets after close, the extra cap may be less useful than it looks. Also confirm whether purchase-price adjustment disputes are paid from the same escrow or a separate holdback.

Section 5: Seller Financing and SBA Standby Review

If the deal includes seller financing, the seller note is not just a payment term. It affects leverage, lender approval, default leverage, and post-close relationship risk.

Review the note amount, rate, maturity, amortization, payment dates, default triggers, acceleration rights, offsets, subordination, collateral, and whether payments can pause if the seller breaches the APA. If an SBA loan is part of the deal, counsel and the lender should review the seller-note standby terms against SBA SOP 50 10 8 and the current lender package.

Standby details can change the buyer's cash flow. Confirm whether the note is on full standby, partial standby, or scheduled payment, and whether interest accrues during any standby period. Also check whether the seller can enforce the note while an indemnity claim or purchase-price dispute is pending.

Section 6: Representations and Warranties

Representations are the seller's factual promises. They are the bridge between diligence and legal recovery. Read them against what you actually reviewed: financial statements, customer concentration, contracts, employees, taxes, permits, equipment, environmental matters, intellectual property, litigation, and compliance.

The schedules matter as much as the reps. A representation that says "except as disclosed on Schedule 4.12" may be clean or risky depending on what the schedule says. Do not treat schedules as attachments to skim later.

Section 7: Indemnity Cap, Basket, Survival, Escrow, and Carve-Outs

Indemnity is the recovery engine. The key terms work together:

• Cap: the maximum recovery for covered claims.
• Basket or deductible: the threshold before claims can be made or paid.
• Survival: how long reps remain claimable after closing.
• Escrow: the actual pot of funds available without chasing the seller.
• Carve-outs: claims excluded from ordinary cap, basket, or survival limits.

Read these terms together, not separately. A 10 percent indemnity cap with a short survival period and a tiny escrow can be weaker than it looks. A broad fraud carve-out, tax carve-out, or fundamental-representation carve-out may preserve recovery above the ordinary cap, but only if drafted cleanly.

Ask counsel to confirm whether the basket is a true deductible or a tipping basket. In a deductible basket, the buyer only recovers losses above the threshold. In a tipping basket, once the threshold is crossed, recovery starts from the first dollar.

Section 8: Material Adverse Change

The material-adverse-change clause controls what happens if the business deteriorates between signing and closing. It should be read with closing conditions, ordinary-course covenants, and the seller's duty to update disclosures.

Look for exclusions that swallow the clause. Broad exclusions for industry conditions, customer behavior, supply costs, or labor shortages can make the protection hard to use. Also check whether a customer loss, key employee departure, license issue, or financing failure creates an express closing condition even if the general material-adverse-change clause is hard to trigger.

Section 9: Closing Conditions, Consents, and Assignment

Closing conditions are the buyer's last clean exit points. Confirm the list includes financing approval, third-party consents, landlord consent, key contract assignment, license transfer, no uncured seller breach, no material adverse change, delivery of schedules, and required ancillary agreements.

Assignment and consent language is critical in asset deals. Customer contracts, vendor agreements, leases, permits, and software accounts may not transfer automatically. If a key contract needs third-party consent, the APA should say who obtains it, by when, and what happens if it is not obtained.

Commercial leases need special attention. If the acquired business depends on a location, the landlord's assignment consent, estoppel certificate, security deposit treatment, guaranty release, and any lease amendment can determine whether the deal can operate on day one.

Section 10: Covenants, Non-Compete, and Transition Support

Covenants control what the seller must do before and after close. Read for ordinary-course operation, access to records, employee communications, customer transition, confidentiality, non-solicit, non-compete, training, and transition services.

A non-compete tied to the sale of a business is often a core buyer protection, but enforceability depends on jurisdiction, scope, duration, geography, and the seller's role. Treat it as an attorney item, especially if the seller will remain nearby, retain customer relationships, or keep a related business.

Transition support should be concrete. "Reasonable assistance" is less useful than a defined number of hours, covered topics, availability window, and response-time expectation.

Section 11: Disclosure Schedules

Disclosure schedules are where the seller qualifies the representations. Read every schedule next to the representation it modifies. The same schedule may turn a clean rep into a disclosed exception.

Check for:

• Contracts that were not in the data room.
• Customer concentration or termination notices.
• Employee disputes, wage claims, or benefit issues.
• Tax notices, liens, debt, or unpaid trade payables.
• Required consents not reflected in closing conditions.
• Equipment leases or software subscriptions needed after close.
• Litigation, threatened claims, or regulatory correspondence.

If a schedule says "to be provided" or "seller to update before closing," treat that as unresolved diligence, not a harmless placeholder.

How Deal Pack Creates the First-Pass Attorney Handoff

Deal Pack is built for this exact APA moment. For $499, one live acquisition gets 12 credits over 90 days across the APA, seller note, commercial lease, employment agreement, FDD, disclosure schedules, and related deal documents.

The output is a premium first-pass that pairs with your attorney. It gives a risk score from 1 to 10, exact clause quotes, jurisdiction citations, Executive Deal Verdict, Cross-Reference Map, Negotiation Points, and an attorney-handoff PDF. That means counsel starts with surfaced issues, not a cold first read.

Use Deal Pack before the attorney call, then ask counsel to make the legal judgment on priority, local law, negotiation posture, and final drafting. Inkvex provides legal information, not legal advice.

Review your APA with Deal Pack or view all pricing.