Make the Deal

CHAPTER 8 Closing Conditions

Overview of Closing Conditions

Closing conditions define the circumstances that must exist before the parties are obligated to close the transaction. Many of the key closing conditions are discussed in this chapter. In most transactions, the closing cannot occur immediately upon signing because corporate or regulatory approvals necessitate a delay before closing. For example, U.S. antitrust law requires the parties to submit documentation and await approval before consummating a transaction.

In some deals, public shareholders of the target must approve the transaction before a merger can close, and the target must prepare and distribute a proxy statement in advance of the shareholder vote. Such restraints on immediately closing a transaction result in a gap between signing and closing, which can range from a matter of weeks to more than a year. This gap generates or shapes a large portion of the intricacies governed by an acquisition agreement. If there were no gap between signing and closing, the parties would normally close the transaction at the same time it is signed. Given the gap between signing and closing, however, the parties must agree on the circumstances under which they will have to close and under which either party can avoid closing.

Sample Provision

The obligations of each party to effect the Closing are subject to the satisfaction or waiver at or prior to the Closing of each of the following conditions: [litany follows]