The Art of M&A® / Integration: Closing
An excerpt from The Art of M&A, Fifth Edition: A Merger, Acquisition, and Buyout Guide by Alexandra Reed Lajoux
What happens on the closing day itself?
Assuming the parties have conducted a preclosing drill, three things will typically happen:
- Document preparation: The parties and their counsel will review any documents that were revised or newly generated, the parties will execute any previously unexecuted documents, all undated documents will be dated, any required meetings of the board of directors that have not previously been held will be held, and any changed documents or signature pages that must be submitted to local counsel prior to release of their opinions will be transmitted to them.
- Document check: The parties will recheck all the documents against the closing checklists.
- Funding and document delivery: When all counsel are satisfied that conditions to closing have been satisfied or waived, they will instruct their clients’ respective agents to wire funds or file or record documents (simultaneously or in such order as they have agreed), as applicable, and will deem all the documents on the closing table to have been delivered in the sequence set forth in the closing checklist and other governing agreements.
In the case of a transaction involving third-party financing, what part of the deal closes first?
In theory, all transactions typically are deemed to take place simultaneously. Practically speaking, however, the lenders usually will not release the loan proceeds until they receive confirmation that the corporate portion of the transaction has been completed; that is, stock certificates or bills of sale have been delivered or merger certificates have been filed, and security and title documents have been properly recorded.
How long does it actually take to close a transaction?
Depending on the complexity of the transaction, the number of things that do not go according to plan or schedule, and the goodwill, patience, and ingenuity of the parties and their counsel in devising acceptable bridge arrangements, substitutes, or accommodations, the closing phase may be effected within an hour or two, or it may stretch over several days.
On what day should the closing take place?
Preferably any day but a Friday or the day before a holiday. The failure to achieve the closing on the scheduled day prior to a weekend or holiday puts the parties in the awkward position of having to work into or through the nonbusiness day, without the ability to transfer or invest funds until the next business day, and with the attendant disruption in the personal lives of all concerned (which can be particularly troublesome for nonprofessional staff).
What are some of the most common logistical snafus that can derail a closing?
Some of the biggest headaches result from failure to:
- Have local counsel on standby to review any last-minute changes documents, because they may contain material inaccuracies caused by the passage of time that will require redating, amendment, or waiver in order to close the transaction
- Provide local counsel with copies of documents or other items that are conditions to release of their opinions
- Have precleared articles of merger with appropriate jurisdictions
- Have persons on standby to file or record documents, including merger documents, UCC forms such as UCC-1s, mortgages, and terminations of UCC-1s required to be removed off-record
- Have adequate support staff to make last-minute revisions in documents
- Have conducted the preclosing drill, including execution of all documents not subject to change
- Have adequate legal staff at closing headquarters to negotiate final documents, including local counsel legal opinions
- Secure funding before transferring title
- Obtain proper wiring instructions for funds transfers
- Ascertain time periods by which wires must be sent or to make arrangements to have banks hold their wires open past normal hours
- Consummate any preclosing corporate reorganizations (such as mergers of subsidiaries into parent companies, dissolution of defunct subsidiaries, or filing of charter amendments) in a timely fashion
- Have tax counsel review the final terms and documentation to ensure that tax planning objectives have not been adversely affected by last-minute restructuring or drafting
- Obtain required bring-down good-standing certificates or other certified documents from appropriate jurisdictions
Proper advance planning can prevent most, if not all, of these failures.
Learn more about Closing Day at our upcoming live-online training session:
"The Art of M&A® for Integration Leaders: Mastering the Fundamentals / Live-Online" - November 7-9, 2023, via Zoom.
Lajoux, Alexandra Reed with Capital Expert Services. The Art of M&A, Fifth Edition: A Merger, Acquisition, and Buyout Guide. United States of America: McGraw Hill, 2019. Pp. 761-763. Print.