Signing and closing are different days
Many deals are signed and closed at the same moment, but larger ones often sign first and close later, once conditions are met. Those conditions can include regulatory clearance, consent from landlords, lenders, or major customers, and the absence of a significant adverse change in the business. For transactions above certain size thresholds, the parties may have to file with the federal antitrust agencies and wait before closing, and some deals also draw review from industry regulators or, where foreign buyers are involved, national security review. Between signing and closing, the seller usually agrees to run the business in the ordinary course and to ask before making major changes. Disputes during that gap are more common than people expect, especially when the business performs differently than projected.
Where the risk is divided
The definitive purchase agreement is where the parties allocate risk. The seller makes representations about the business, the disclosure schedules list the exceptions, and indemnification provisions decide what happens if a representation turns out to be wrong. Caps, baskets, survival periods, and escrows set how much protection the buyer really has, and some buyers now use representations and warranties insurance that changes how those terms are negotiated. Preparing the disclosure schedules carefully is one of the most important tasks for a seller, because an item disclosed there is usually not a breach later. Buyers should keep track of what diligence revealed and make sure it is reflected in the agreement or the price.
What we work through with a client
On either side, we start by mapping the path to closing: which approvals and consents are needed, who is responsible for obtaining them, and what happens if one is refused. We look at the termination rights, any fees tied to termination, and what each party can do if the other does not close. For sellers, we pay close attention to purchase price adjustments and earnouts, which are common sources of disputes after closing. For buyers, we focus on whether the protections in the agreement match the risks diligence found. Tax and accounting advisors should be involved alongside us, since structure choices are difficult to reverse once documents are signed.
