Germany: Corporate Acquisition In The Digital Age – The SPA As A "Smart Contract" In The Blockchain?

Last Updated: 8 May 2018
Article by Stephan Morsch
Most Read Contributor in Germany, September 2018

The placement of a second borrower's note by LBBW with the help of blockchain was met with great response in public reporting at the end of 2017. At the same time, various international banks are gaining attention with their plans to launch joint platforms for offering trade financing via blockchain. Both events show that fairly legally complex transactions can be mapped with the blockchain technology in practice. Will this be the moment of truth for blockchain in corporate acquisitions and sales?

The blockchain

According to a common definition, blockchains are databases in which certain events are recorded and specified mostly for all participants transparently in chronological order. Compared to conventional databases, the blockchain technology has two special features: On the one hand, they are decentralized databases that are located on all computers connected to a blockchain network and are not concentrated on a single central server. The large number of participants in a blockchain network in turn is the basis for the second feature: The verification of the events to be stored is not carried out by a central location, but solely by the community of network participants by means of an algorithmically supported procedure referred to as "consensus." Issuing a borrower's note and the financing of trading transactions, as well as the acquisition or sale of a company, represent a sequence of legally relevant events. It is therefore quite obvious that such transactions can also be processed using the blockchain technology.

The SPA as a smart contract?

First of all, the term "smart contract" is misleading. It is a software application which, according to defined rules and in accordance with its programming, produces a specific result when certain events occur. In practice, beverage vending machines or candy dispensers are frequently used as an analogy to smart contracts, where a certain product is ejected into an output slot when the correct amount of coins is inserted and a selection button is pressed, thus creating a contract. What is "smart" in this context is at best the programming service that maps the entire transaction logic. Less smart, on the other hand, is the mode of operation of the vending machine, which works according to a strict "right or wrong" or "if this then that" mechanism. The situation is similar with the smart contracts in the blockchain, which leave little room for the consideration of unforeseen events or undesirable developments, room for discretion or interpretation. The general clauses and indefinite legal terms that are of importance in German legal practice are not to be found in a smart contract, either.

It is easy to see that the SPA itself is not a smart contract. It regularly maps an individual transaction structure, which is the result of tax considerations and due diligence. In addition, contracts for the acquisition or sale of companies typically include a sophisticated purchase price adjustment mechanism, a catalogue of behavioral obligations of the buyer and seller, or a special warranty regime. To avoid misunderstandings: The product "sales and purchase agreement" is of course accessible to a variety of technological applications ("legal tech"), but it is not the result of a simple "if this then that" logic.

On closer inspection, however, it is possible to identify elements of an SPA that are at least similar to the mechanism of a smart contract in terms of processing: For example, a trusteeship agreement according to which part of the agreed purchase price is parked with a trustee to secure any claims the buyer may have against the seller and is paid out in full or in part to the seller or the buyer after a strict "if this then that" mechanism. Or the closing of the SPA itself, which in many cases is based on a predefined logic: If certain closing conditions have been met and certain closing deliverables have been submitted, the buyer has to pay the defined purchase price and the shares in the company will transfer. The latter example faces German legal reality, however, which provides for various formalities for the transfer of shares (such as notarization).


Promissory notes with the terms stipulated by the issuer and standard financing modules for international trade in goods, for which there is a strong demand in day-to-day business, can easily be recognized as applications in which the components of the contract can be programmed as smart contracts and processed with the help of the blockchain. As a rule, sales and purchase agreements are not part of the standardized contracts, even if they consist of a large number of well-known text modules and supposed model clauses. Even if the individually negotiated SPA were to follow a simple "if this then that" logic, the programming effort for such an individual agreement would be enormous. Even if SPAs will not be settled as smart contracts via the blockchain in the foreseeable future, the blockchain technology will have an enormous influence on transactions (such as trustee agreements) and the processing of transactions.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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