Definition - What does Closing mean?
Closing in a sale agreement is the rather anti-climactic end to a long, drawn-out negotiation process of a merger and acquisition. All of the parties, the buyers and the sellers, sign many papers during the process. A smooth signing and closing is the key to success in any transaction. Careful and detailed preparation of the signing and closing process is necessary.
Divestopedia explains Closing
During closing, it is important to:
- Finalize the purchase agreement and all exhibits
- Compile all the signing papers
- Ensure that all approvals have been obtained
Closing involves obtaining the necessary consent, drafting, negotiating and delivering all documents, satisfying the state requirements, ensuring all conditions have been satisfied, and arranging for transmission of the purchase price.
However, a simultaneous closing may not be possible when the deal is conditioned on buyer financing. It increases the stockholder's risk, but allows the parties to determine their rights and remedies in case the required consents are not obtained.
Closing deliveries include:
- Operative transaction documents such as a merger agreement
- Board and stockholder's consent authorizing the transaction
- Ancillary agreements and documents, such as employment agreements and escrow agreements
- Regulatory approvals
- Legal opinions
- Purchase consideration
- Evidence of release of liens
There are covenants that restrict the action that target firms may take prior to closing, such as refraining from entering into material agreements, incurring any additional debt and soliciting competing bids.