Conditions Precedent
Conditions precedent are the things that must happen between signing a sale agreement and completing it — regulatory approvals, competition clearance, third-party consents, shareholder votes, the absence of a material adverse change — before either side is obliged to close. They are why a fintech deal is signed and completed months apart, and where the risk of a deal that never closes is allocated.
- Also known as
- CPs, Closing conditions, Conditions to completion
- Used at
- every acquisition with a gap between signing and completion; in a licensed fintech, always, because the regulator's approval cannot be obtained before the buyer is contractually committed
- Binding
- yes — the agreement lists them, says who must satisfy each, by when, and what happens if one fails; a long-stop date ends the deal if they are not all met
- Typical conditions in fintech
- approval of the change of control by each regulator (three to six months in the UK and EU); merger control where thresholds are met; consent of card schemes, sponsor banks and key customers with change-of-control clauses; no material adverse change; the seller's warranties still true at completion
- Typical long-stop
- six to nine months after signing, sometimes extendable once if approvals are pending
- Parties
- the buyer and the seller, each with conditions in their favour; the regulators and third parties whose acts satisfy them
How conditions precedent work in practice
Signing binds both sides to the price and the terms; completion transfers the shares and the money. Between the two, the conditions run. Each is drafted with an owner — the buyer must obtain the regulatory approval, the seller must obtain the landlord's consent — a standard of effort ("all reasonable endeavours", or the stricter "best endeavours"), and a consequence: a condition in the buyer's favour can be waived by the buyer, one in the seller's by the seller, and if a condition is not met by the long-stop date, either side may walk away.
The regulatory condition is the one that matters in fintech. A change of control over a licensed firm needs the regulator's approval, which is applied for after signing, takes months, and can come with requirements — more capital, a different board, a restricted business plan. The agreement says what the buyer must accept: a "hell or high water" clause obliges it to accept any condition the regulator imposes; a narrower clause lets it walk if the conditions are materially adverse. Break fees sometimes sit behind this — a payment by the buyer if the deal fails on a regulatory or competition ground, compensating the seller for the months it spent off the market.
The MAC condition — no material adverse change between signing and completion — is the buyer's protection against the business collapsing in the gap; sellers narrow it until it covers little, and it is rarely invoked successfully.
Example
A bank signs to buy an e-money institution for €45m. Conditions: approval of the change of control by the Bank of Lithuania (buyer to obtain, all reasonable endeavours, accepting any conditions except a capital requirement above €8m); consent of the company's two sponsor banks and of Visa to the new principal (seller to obtain); no MAC; warranties true at completion; long-stop nine months. The regulator approves in month five with a condition that the buyer keep €7m of own funds in the entity — within the agreed threshold, so the buyer cannot walk. One sponsor bank refuses consent and gives notice; the seller's condition fails, and the parties agree a €3m price reduction and a six-month transitional arrangement with the other sponsor rather than terminate. Completion is in month six.
Common mistakes
- A regulatory condition without saying what conditions the buyer must accept, so the regulator's letter starts a new negotiation. - Conditions with no owner and no standard of effort, which nobody is obliged to satisfy. - A long-stop date set by optimism rather than by the regulator's statutory timetable plus a margin. - A MAC clause a buyer relies on for protection it does not give. - Forgetting the third-party consents — schemes, sponsor banks, the largest customers — whose contracts terminate on a change of control.