Certainty of Closure

Definition - What does Certainty of Closure mean?

Certainty of closure refers to the likelihood or probability that a transaction will close. Most buyers (strategic and financial) assess the certainty of closure before proceeding with a letter of intent because the costs incurred during due diligence can be very high. Therefore, the certainty of closure must also be high to justify incurring the effort and costs required.

Divestopedia explains Certainty of Closure

Sellers should be especially mindful of the certainty of closure in a transaction. During the sale of a business, many different kinds of buyers may surface with attractive offers. In many cases, the highest purchase price may not be the best selection for a seller if it comes from a buyer that may not have financing secured to complete the transaction or simply has a poor history of closing deals. In other words, this buyer may have offered high to make up for a certainty of closure that is low.

A seller can end up incurring high dead deal costs through due diligence if the transaction fails because the buyer didn't come through. Therefore, a high certainty of closure from a buyer who has a proven track record may be more important than a high purchase price. It is better to get a lower price for the business, but close the transaction than to get a high price and end up back at the auction if the deal doesn't close.

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