Closing conditions in a company acquisition: conditions to completion between signing and closing

With the signing of the purchase contract the transaction is legally agreed but not yet completed. In many cases completion may only take place once certain requirements are met. Thus a merger clearance often has to be obtained before completion, because the acquisition would otherwise be unlawful. A suspended phase arises between signing and closing as a result.

This phase is governed by conditions precedent. Only once all conditions have arisen or have been effectively waived can completion be demanded. Until then both parties are bound, but ownership does not yet pass. How the contract is built up to this point is shown in the post on the SPA warranty catalogue.

If completion coincides with signing, this is called a simultaneous closing. That is only possible if no regulatory clearance and no consent of third parties is outstanding. In practice the separation of signing and closing is the rule in company acquisitions above a certain size. Our focus page on contract drafting and warranties offers more depth.

At the top usually stands the merger clearance. If the transaction reaches the thresholds, it must be notified to the Austrian Federal Competition Authority; in larger cases EU merger control can also apply. Completion before clearance is prohibited and can lead to serious consequences. In addition, sector-specific regulatory consents may be required.

Corporate consents are also frequently necessary, such as a resolution of the shareholders meeting or the consent of a supervisory board. Another typical condition is the consent of third parties on a change of control: contracts with banks, suppliers or landlords often contain a change-of-control clause that triggers a consent requirement or a right of termination on a change of owner.

Finally, a MAC clause and a financing confirmation are often found. The MAC clause, material adverse change, allows the buyer to withdraw if the situation of the target company deteriorates materially between signing and closing. The financing confirmation makes completion dependent on the purchase price financing being secured. The concept of the MAC clause we explain in the glossary.

Not every condition serves both parties. Conditions that protect only one side can often be waived unilaterally by that side, thereby enabling completion. Regulatory conditions such as merger clearance, by contrast, are mandatory and cannot be excluded. The contract should clearly govern which condition is waivable and who may declare the waiver.

So that the suspended phase does not last indefinitely, a long-stop date is agreed. If not all conditions arise by this cut-off date, the entitled party has a right of withdrawal. In this way the parties avoid a transaction remaining bound for months although a clearance cannot be obtained. The long-stop date should be set with a sense of proportion so that realistic clearance procedures still fit within it.

For completion a bring-down of the warranties is frequently agreed. The seller confirms that the warranties given in the purchase contract still hold true at closing. A material breach can then trigger a right of withdrawal or claims. How warranties work legally is explained in the post on share deal and asset deal.

Once all conditions are satisfied, the closing follows. It consists of a series of completion actions that must be performed in the correct order: payment of the purchase price, transfer of the shares or assets, handover of documents and appointment of new bodies. These steps are usually recorded in a completion list so that nothing is forgotten on the closing day.

The conclusion is the closing memorandum. In it the parties confirm that all conditions have arisen and all completion actions have been performed. The memorandum documents the time of completion and creates clarity about the passing of benefits and burdens. It is at the same time evidence that the transaction has been properly concluded.

In practice it is worth running through the closing process in advance. A prepared completion prevents individual documents from being missing or payment routes from being unclear on the final day. An initial assessment of the risks of your transaction is provided by our M&A transaction risk profile.