The period between signing and closing represents a critical phase when conditions are met and the deal is finalised. Signing marks the contractual agreement, while closing involves the actual transfer of ownership. This interim period carries specific risks and obligations for both parties.
What is the difference between signing and closing in an acquisition?
Signing is the moment when the parties sign the purchase agreement and bind themselves contractually. Closing concerns the actual completion at which ownership passes and the purchase price is paid. The period in between serves to fulfil conditions.
Signing creates a binding agreement with mutual obligations. The buyer acquires exclusive rights to the acquisition, while the seller is bound by the agreed terms. This stage marks the end of negotiations on principal terms.
Closing takes place after all conditions precedent have been met. During this phase, shares are actually transferred, the purchase price is paid and any adjustments take place. The period between signing and closing varies from a few weeks to several months, depending on the complexity of the conditions.
For buyers, this period means certainty about the acquisition, but also risks if conditions are not met. Sellers retain ownership but are limited in their freedom of action by contractual obligations.
What conditions must be met between signing and closing?
Typical conditions precedent include funding approvals, authorisations from authorities, follow-up investigations and contractual approvals from third parties. These conditions protect both parties against unforeseen developments.
Financing conditions are often the most critical component. Buyers must obtain final credit approvals, with banks conducting their own due diligence. This process can take several weeks to months, depending on the financing structure.
Authorities' approvals are required in transactions that touch on competition rules or involve regulated sectors. The Consumer and Market Authority (ACM) reviews mergers above certain thresholds. International deals may require approvals in multiple jurisdictions.
Follow-up research focuses on specific risks identified during initial due diligence. This may involve technical audits, environmental investigations or IT security assessments. Contractual approvals from key customers, suppliers or financiers are often necessary for continuity.
Additional conditions may relate to retaining key personnel, completing ongoing legal proceedings or obtaining specific insurance.
On average, how long is the period between signing and closing?
The period between signing and closing lasts on average 6 to 12 weeks for standard transactions. Complex international deals or transactions with extensive terms can take 3 to 6 months.
Several factors influence this timeline. Financing structure plays a crucial role - cash deals close faster than transactions with complex financing arrangements. Competition approvals add 4-8 weeks to the process.
Sector-specific regulations extend the period considerably. Transactions in the financial, healthcare or energy sectors often require extensive consent procedures. Cross-border deals bring additional complexity due to different legal systems.
Parties can speed up the process through early preparation of documentation, parallel implementation of conditions and proactive communication with authorities. A structured approach with clear milestones and responsibilities avoids unnecessary delays.
The quality of initial due diligence affects speed. Thorough preparation reduces the need for extensive follow-up research. Professional guidance on M&A transactions ensures efficient process coordination.
What happens if the closing does not go ahead after signing?
If closing does not take place, mutual obligations lapse and may break-up fees are due. The agreement determines which party bears costs and under what circumstances compensation is due.
Several scenarios can lead to non-closing. Failure to fulfil conditions precedent due to external factors (such as denied consents) usually leads to contract termination without damages. Non-performance by one of the parties can, however, lead to damages claims.
Material Adverse Change (MAC) clauses offer buyers protection against significant deteriorations. These clauses are restrictively worded and usually only cover fundamental business changes, not normal market fluctuations.
Break-up fees compensate for costs incurred and lost opportunities. These amounts range between 1-3% of the transaction value. Reverse break-up fees protect sellers from buyers who withdraw without a valid reason.
Legal implications include possible damages claims for lost profits, costs incurred and reputational damage. Contractual provisions on exclusivity, no-shop clauses and information obligations often remain in force during dispute resolution.
What risks exist between signing and closing?
Material Adverse Change risks pose the biggest threat, where significant deterioration can cause the deal to fail. Market volatility, operational problems and external shocks can threaten the deal.
Operational risks arise from reduced management focus during the interim period. Key personnel may leave due to uncertainty, customers may cancel contracts or suppliers may change terms. These developments affect the enterprise value.
Financing risks manifest themselves through changing market conditions. Interest rate increases, credit crises or deteriorating creditworthiness can jeopardise financing approvals. Covenant breaches in existing financing further complicate the situation.
Regulatory risks include unexpected regulatory changes or denied consents. Competition authorities may demand unexpected remedies or block transactions altogether.
Protection mechanisms include MAC clauses, specific warranties and representations, and escrow arrangements. Insurance policies can cover certain risks. Interim management arrangements regulate business operations during the interim period.
How do you prepare for a successful closing?
Successful closing required systematic preparation with clear action plans, responsibilities and timelines. Both parties should proactively work together to fulfil conditions in a timely manner.
Document preparation starts immediately after signing. All necessary certificates, approvals and statements must be collected. Legal documentation requires careful review for consistency and completeness. Notarial deeds must be prepared in a timely manner.
Stakeholder management includes regular communication with funders, authorities and other interested parties. Transparency about progress and potential bottlenecks prevents last-minute surprises. Key personnel should be informed about timing and consequences.
Operational continuity requires attention during the interim period. Interim management arrangements should ensure normal business operations without compromising the deal. Important decisions often require approval from both parties.
Professional support from experienced consultants significantly increases the success rate. We coordinate the entire process, monitor critical deadlines and facilitate timely communication between all parties involved. For complex transactions, specialised guidance is essential for successful completion within the set deadlines. Take contact at for professional support on your M&A journey.
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