Introduction

In many M&A deals, signing and closing do not happen on the same day. Weeks, sometimes months, can separate them. Why? Because certain conditions precedent must be fulfilled before the transaction can close. These conditions are not just formalities, they are safeguards that protect both buyer and seller.

What is the difference between signing and closing?

Signing and closing are two distinct milestones in an M&A transaction, each with its own legal and practical significance:

Signing

- Definition: Signing is the moment when the parties formally agree to the terms of the transaction by executing the main contracts (such as the Share Purchase Agreement, SPA).

- Legal effect: At signing, the parties are contractually bound to proceed with the deal, subject to the fulfilment of certain conditions precedent.

- What happens: The agreement is reached, but ownership of shares or assets does not yet transfer. The deal is not yet “consummated.”

- Purpose: Signing locks in the negotiated terms and provides a framework for completing the transaction.

Closing

- Definition: Closing is the point at which the transaction is completed: funds are transferred, shares or assets change hands, and control passes to the buyer.

- Legal effect: All conditions precedent must be fulfilled (or waived) before closing can occur. Only then does the actual transfer of ownership and payment take place.

- What happens: The parties perform the “closing actions” (e.g., payment, delivery of share certificates, board resolutions, regulatory filings).

- Purpose: Closing marks the legal and economic transfer of the business.

Why conditions precedent matter

Conditions precedent (or “conditions suspensives” in French, “Opschortende voorwaarden” in Dutch) are obligations that need to be met before funds and shares change hands. They exist to ensure that the deal closes under the agreed circumstances, without hidden risks or unresolved issues. Ignoring them can lead to delays, disputes, or even a failed transaction.

Common examples

In most M&A deals, signing the agreement is only the first step. The transaction will only close once certain conditions precedent are fulfilled. These are safeguards designed to ensure that the business you are buying or selling remains in the same condition as agreed at signing, and that both parties are protected from unexpected risks.

Typical conditions include:

- Buyer securing bank financing: The buyer must obtain the necessary funds, often through loans or credit facilities, to pay the purchase price. This protects both sides from a failed transaction due to lack of financing.

- Release of liens or guarantees on shares or assets: Any existing security interests, pledges, or guarantees over the company’s shares or assets must be removed before closing. This ensures the buyer receives clean title and full ownership, free from third-party claims.

- Third-party consents for key contracts: If the target company has important contracts (e.g., with customers, suppliers, landlords) that require consent for a change of control, these approvals must be obtained. Without them, the buyer risks losing critical relationships or facing contract termination.

- Regulatory approvals: Certain transactions require clearance from competition authorities, sector regulators, or government bodies. These approvals are essential to ensure the deal complies with legal requirements and does not trigger penalties or unwinding.

- No major adverse events between signing and closing: The agreement may include a “material adverse change” (MAC) clause, allowing the buyer to walk away if a significant negative event occurs (e.g., loss of a key customer, major lawsuit, or financial downturn).

Conditions precedent are not just formalities, they are essential protections. They ensure that the business is transferred as promised, with all risks and obligations clearly identified and managed. By addressing these points upfront, both buyer and seller can avoid unpleasant surprises, disputes, or even a failed transaction.

Points of vigilance

To avoid unnecessary delays or deal fatigue:

- Limit conditions to what is truly necessary, too many can jeopardise the deal

- Set clear deadlines to prevent endless postponements

- Define notification and proof requirements to avoid ambiguity

- Include cooperation obligations so both parties act in good faith

Well-structured conditions protect both sides without blocking the transaction unnecessarily.

What happens if conditions precedent are not met?

In an M&A transaction, conditions precedent are specific requirements that must be fulfilled before the deal can close. If these conditions are not met by the agreed deadline, several outcomes are possible:

- Deal does not close: The most straightforward consequence is that the transaction does not proceed. The parties remain bound by the signed agreement, but the transfer of funds and shares does not occur.

- Right to terminate: Most agreements give one or both parties the right to terminate the contract if conditions precedent are not satisfied by a certain date (the “long stop date”). This allows either side to walk away without completing the deal.

- Renegotiation: If a condition cannot be met but both parties still want to proceed, they may renegotiate the terms. This could involve waiving certain conditions, adjusting the price, or agreeing on alternative solutions.

- Waiver of conditions: Sometimes, a party entitled to the benefit of a condition precedent may choose to waive it, allowing the deal to close even though the condition was not fulfilled. This is common if the condition is not critical or if the risk is acceptable.

- Extension of deadlines: The parties may agree to extend the deadline for fulfilling the conditions, especially if the outstanding issues are expected to be resolved soon.

- Potential liability: If a party is responsible for failing to fulfil a condition (for example, not securing required approvals in good faith), they may be liable for break fees or damages, depending on the contract terms.

The dups approach

At dups, we do not just draft clauses, we negotiate them with a strategic lens. Our boutique M&A team combines legal and financial expertise under one roof, ensuring your SPA is clear, enforceable, and aligned with your goals. We sit next to entrepreneurs, anticipate risks, and deliver under pressure, from strategy to closing.

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