In this guide, our M&A consultants cover the signing and closing stages of your M&A transaction to help you understand what to expect.
Agreeing to a merger or acquisition is more than signing the initial contract and beginning the integration process. Signing and closing are distinct steps critical to the success of any M&A transaction.
Without navigating these steps correctly, you cannot complete the transaction. Plenty of deals can fall through at this stage, including if the competition watchdog decides to intervene. One example was the failed £7 billion Sainsbury’s and Asda merger, which failed at the eleventh hour due to this body.
In this guide, we’ll cover the signing and closing stages of your M&A transaction to help you understand what to expect.
What is signing and closing in an M&A?
Signing is the moment both parties agree to the terms within the agreement and sign a document called an acquisition agreement. Within this agreement, you will also find the deal's financial terms, such as the total price and payment method.
The signing stage takes place after negotiations and is the penultimate stage of the M&A process. Once you have completed the signing stage, you’ll move on to the closing stage. Closing cannot begin until all conditions have been met, including regulatory approval.
Closing is the moment the M&A transaction is officially completed, and all terms and conditions have been met. The closing stage marks the formal transfer of ownership and control.
Note that signing and closing can be simultaneous, but more complex deals tend to split them into two distinct stages. These stages are combined into one only in the case of smaller companies or deals with no outstanding conditions.
Book a Chat with an M&A Consultant Now
Signing process
The signing process is more in-depth than closing and requires following a series of steps to complete it. The steps may vary based on the transaction, but you can expect the process to look something like this:
1. Negotiation – All parties will agree on the primary terms of the transaction and any important clauses to be included in the final agreement.
2. Document Preparation – After agreeing to the main terms of the M&A deal, your legal team will prepare the necessary documents to formalise your deal.
3. Legal Review – Parties must ensure that everything is present and correct. Many companies may hire an experienced M&A lawyer to ensure everything is legally compliant.
4. Signing – Finally, each party will sign the necessary documents to bring the transaction to life.
Closing process
Closing is relatively straightforward but still essential to the success of any deal. Anywhere from 70-90% of M&A deals fail, and many fail between the signing and closing stages. In particular, before the transaction can be completed, each party may have to meet certain conditions, such as conducting financial audits and getting regulatory approval.
If all conditions are met, a closing meeting will solidify the formal transfer of ownership and assets. More complex deals may have intermediary steps, including extra payments and subscriptions.
Closing documents for mergers and acquisitions
Closing an M&A deal often requires a mountain of documents to complete a deal. Not all documents will be relevant to your deal. That’s why you should create a comprehensive M&A closing checklist together with a dedicated consultant.
Your checklist should include documents that must be signed and delivered at closing, which may include:
You may also have to produce certain ancillary documents, including but not limited to employee and equity agreements, releases, and leases. Moreover, some documents should be delivered before closing, which may include:
Note that due diligence continues, and the other party may ask for certain documents before agreeing to complete the closing process.
Best practices for successfully closing an M&A
No deal is complete until closing. Although signing and closing are often considered mere formalities, the other party is entitled to back out of the deal before they reach the closing stage.
That’s why it’s vital to maintain the other party’s trust and communicate throughout the whole process. Maintain clear lines of communication and respond to all messages and requests promptly to avoid derailing your deal at the last moment.
Other best practices to adopt include:
Above all, always have a plan B for any roadblocks that may pop up. Every delay costs time and money, but if you can plan for these potential hiccups, you can keep your deal on track.
Speak with an M&A Consultant for Support
Potential post-closing issues
Closing is not the end of your journey but the beginning. Many experienced entrepreneurs agree that this is where the real hard work starts.
The biggest challenge of the post-closing phase is integration. Bringing new facilities, employees, and systems into your organisation represents the greatest threat to the success of your M&A. Ideally, your post-closing integration team should have started laying the groundwork before you officially closed.
Post-acquisition disputes may also occur, leading to legal action. Most of these disputes tend to revolve around issues like earnouts, warranties and other clauses contained within the final agreement. This is why comprehensive legal aid and the support of a specialised M&A consultant can be so valuable.
At Hilton Smythe, our M&A experts guide and advise throughout every stage of the M&A process. To learn more about how we can help, speak to the team now.