Transaction closing

What it means

Transaction closing is the moment a sale of a company or shares is actually completed: the buyer pays the price, the seller transfers the shares and documents, keys and access are handed over. It follows signing of the share purchase agreement and satisfaction of the agreed conditions.

Weeks or months often pass between signing and closing. During this time conditions precedent are fulfilled, such as competition authority, bank or key customer approvals, and the buyer may walk away on a material adverse change.

When signing and closing take place at once, it is called a simultaneous sign and close. This is common in smaller deals that need no regulatory approvals.

How it works in practice

Before closing, a closing checklist of steps and documents is prepared. It includes shareholder resolutions, the commercial register filing, repayment of the seller's loans, director resignations and payment confirmations.

The price is often paid through escrow or notarial custody so the seller receives the money only after the shares are transferred. Part of the price may be held back to cover warranties and indemnities.

For the accounts, closing is a key date: from then the buyer controls the company, closing accounts are drawn up and the price is adjusted for net debt and working capital.

What to watch out for

Between signing and closing the seller must run the business in the ordinary course. Paying dividends, taking new loans or signing major contracts without the buyer's consent may breach the agreement.

If a consent is overlooked, such as a change of control clause in a lease or loan agreement, the counterparty may terminate after closing. Such clauses should be found during due diligence.