The mergers and acquisitions (M&A) process involves a series of complex steps, with two of the most crucial being Signing and Closing. While both are fundamental milestones in finalizing a deal, their differences can directly impact the success of the transaction.
Understanding the role of Signing and Closing in the M&A context is essential for investors, lawyers, and business owners aiming to ensure a secure and efficient operation. This article explores the meaning of each phase, their key differences, and the challenges that may arise along the way.
What are signing and closing in M&A?
Signing: The formal commitment to the deal
Signing refers to the signing of the Share Purchase Agreement (SPA) or merger contract. At this stage, the parties legally formalize their intention to complete the transaction, defining the key terms and conditions of the deal.
Key characteristics of Signing:
- Agreement formalization: Signing of the main contract.
- Definition of conditions precedent: Rules that must be met before Closing.
- Possibility of termination: In specific cases, the contract may be canceled if conditions are not fulfilled.
- Beginning of the Pre-Closing phase: Time for adjustments and regulatory approvals.
Closing: The finalization of the transaction
Closing occurs when all conditions stipulated in the Signing phase have been met, and the transfer of assets or shares is officially completed. Only at this point are the agreed payments made, and the transaction is definitively concluded.
Essential elements of closing:
- Fulfillment of conditions precedent: Regulatory approvals, third-party consents, among others.
- Financial settlement: Payment of the agreed amount.
- Transfer of control: The buyer officially acquires the rights over the purchased company.
- Corporate registration and updates: Depending on the jurisdiction, formal legal changes may be required.
Key differences between signing and closing
| Aspect | Signing | Closing |
|---|---|---|
| What does it represent? | Formal commitment | Completion of the transaction |
| When does it occur? | At contract signing | After all conditions precedent are fulfilled |
| What does it define? | Rules and conditions for finalizing the deal | Compliance with obligations and asset transfer |
| Payment | Has not yet occurred or is partial | Full payment and official transfer of ownership |
Main challenges between signing and closing
While Signing marks a firm commitment between the parties, the period between this phase and Closing can present challenges requiring careful attention:
1. Conditions precedent and regulatory approvals
Companies must comply with regulatory requirements set by agencies such as CADE (Brazil), SEC (U.S.), and the European Commission. Delays in these approvals can significantly impact the Closing schedule.
2. Due Diligence and legal risks
After Signing, legal and financial issues may arise, requiring renegotiations or contract adjustments. Poor due diligence may lead to the discovery of hidden liabilities, which can impact the transaction.
3. Material Adverse Change (MAC) clauses
Some contracts include provisions that allow for the deal’s cancellation if significant adverse events occur before Closing. Economic crises, legal changes, or sharp declines in the target company’s performance can trigger these clauses.
4. Financing and payment settlement
If the buyer depends on external financing to complete the transaction, any delays or issues in fund disbursement can postpone or even jeopardize Closing.
How to ensure a smooth transition from signing to closing?
To mitigate risks and avoid setbacks, several best practices are essential:
1. Structure a solid contract
The contract should include detailed clauses outlining conditions precedent, party obligations, and realistic deadlines.
2. Monitor compliance with conditions precedent
The legal and financial teams must closely oversee the execution of regulatory and operational requirements to ensure Closing proceeds as planned.
3. Plan for adverse scenarios
It is crucial to define risk mitigation strategies to avoid unpleasant surprises. Having contingency plans for potential obstacles can help save the deal.
4. Ensure transparency between the parties
Clear and continuous communication among buyers, sellers, and advisors is essential to maintaining trust and alignment throughout the process.
Signing and Closing are indispensable phases in the M&A process, each with its own importance and challenges. Companies that master these steps can ensure greater legal, operational, and financial security, reducing risks and maximizing the success of the transaction.
If you want to deepen your knowledge of M&A or need specialized support for your deal, contact Pipeline Capital and explore the best opportunities in the market.
Contact: https://pipeline.capital/contact-ma/
