Signing and Closing
Signing is the day the buyer and seller become bound by the sale agreement; closing — completion, in UK usage — is the day the shares and the money change hands. When nothing has to happen in between, the two are simultaneous; when approvals or consents are needed, they are split by a gap of weeks or months, during which the seller still runs the business and the buyer still has to pay for it.
- Also known as
- Signing and completion, Simultaneous signing and closing, Split exchange and completion
- Used at
- every acquisition; the choice between simultaneous and split is decided by the conditions precedent
- Binding
- from signing — the price, the terms and the obligation to complete once conditions are met; walking away after signing is a breach unless a condition fails
- Typical gap in fintech
- three to six months, set by the regulator's change-of-control review; longer if merger control or several regulators are involved
- Typical protections for the gap
- seller's undertakings to run the business in the ordinary course; a MAC condition; a repeat of the warranties at completion; a locked-box or completion-accounts mechanism for the price
- Parties
- the buyer, the seller, and everyone whose act is a condition — regulators, schemes, lenders, landlords
How signing and closing work in practice
At signing the deal is done in law but not in fact. The parties have agreed the price and the terms; the seller has given warranties about the business as of that day; the buyer has committed the money. Then the conditions run — the regulator reviews the buyer, the competition authority clears the combination, the third parties consent — and the business carries on under the seller's management with the buyer looking on. The agreement governs the gap: the seller may not pay dividends, change the business, hire or fire senior staff, or sign material contracts without the buyer's consent, and must report what is happening. The buyer may not run the business, because it does not own it — and in a competition-controlled deal, "gun-jumping" by acting as owner before clearance is an offence.
The price has to survive the gap too. Under a locked box, the price was fixed on a balance sheet before signing and the seller promises no value has leaked since; the buyer economically owns the business from the locked-box date and pays interest on the price for the gap. Under completion accounts, the price is adjusted after closing for the actual net debt and working capital on the completion date, so the gap's trading is the seller's. Fintech sellers prefer the locked box for certainty; buyers of a business with volatile working capital prefer completion accounts.
At closing the documents are dated, the money moves, the board changes, and the buyer's first act is often to file the notifications the licence requires.
Example
A buyer signs to acquire a payments company on 1 March for €40m on a locked-box basis, the box dated 31 December; the price carries interest at 5% a year to completion. The regulator's approval arrives on 20 July and completion is 31 July: the buyer pays €40m plus €1.17m of interest for the seven months, and the seller has been barred from paying dividends since the locked-box date. Had the deal been on completion accounts, the buyer would have paid €40m adjusted for the 31 July net debt and working capital — and the seller, who ran the business for the gap, would have had every incentive to collect receivables early and pay suppliers late in July.
Common mistakes
- A gap-period covenant list so tight the seller cannot run the business, or so loose it can strip it. - Acting as owner during the gap in a deal under competition review. - A locked box with no leakage protection, so the seller's dividend in the gap is legal. - Repeating the warranties at completion without a mechanism for what happens if one is no longer true. - Scheduling completion for a day the money cannot move — a bank holiday in the seller's jurisdiction, a Friday after the payment cut-off.