Signing & Closing: What happens between signing and closing a transaction?

2023/10/11

Posted by 3Capital Partners

The acquisition of a company can be extended beyond the mere signing of the initial contract. Both “Signing” and “Closing” are important steps in a merger and acquisition process, playing an essential role in the success of this procedure. Each of these milestones plays a crucial role in revealing negotiations and effectively completing the transaction.

What is Signing & Closing?

In mergers and acquisitions (M&A) operations, the term “signing” marks the moment when the parties involved agree to the terms of the agreement and formalize this commitment by signing a document called “acquisition agreement”. In this agreement, financial details are defined, such as price and method of payment, as well as the conditions, obligations and responsibilities of each party in relation to the M&A transaction.

The signing process usually takes place after months of intense negotiations between the parties and is a crucial step that precedes the final stage of the transaction, known as closing. After the signing phase, it is possible that the parties are still awaiting the completion of certain conditions, such as regulatory approvals and other due diligence, that must be completed before the effective closing can occur.

The term “closing” refers to the moment when the transaction is officially completed, and all conditions agreed between the parties are met. During closing, the parties formally transfer ownership and control of the company or acquired assets.

Although this step can occur during or after signing, in more complex operations, it is more common for this to happen later. When a transaction involves smaller companies or there are no outstanding conditions, signing and closing may occur simultaneously.

Etapas do processo de Signing & Closing

The signing process involves a series of steps that must be completed to ensure that the transaction is completed successfully. The steps vary depending on the nature of the transaction and the parties involved, but in general they may include:

• Negotiation: During negotiation, the parties involved in the transaction discuss and agree on the main terms of the transaction, including price, payment, transaction structure and other important clauses;

• Document preparation: After the main terms of the transaction have been agreed, it is necessary to prepare the necessary documents to formalize the transaction. This may include a purchase and sale agreement or a merger agreement;

• Legal review: Parties involved must carefully review documents to ensure that all clauses comply with applicable laws and regulations. The lawyers involved in the transaction can perform legal due diligence and document review to ensure everything is in order;

• Signing of documents: after all clauses have been reviewed and agreed upon, the parties involved must sign the documents necessary to formalize the transaction.

Closing, in turn, may have few steps, but each of them is extremely important to finalize the transaction.

• Compliance with conditions: before completing the transaction, it is necessary for all parties to meet the requirements established in the contract or merger agreement. This may involve obtaining regulatory approvals, carrying out financial audits and resolving any outstanding issues;

• Transfer of ownership: finally, there is a formal transfer of ownership and control of the assets or acquired company to the parties involved. This may involve the transfer of shares, quotas or other relevant assets. In some cases, there may be intermediate steps such as additional payments and additional subscriptions.

The importance of consultancy in these processes

In summary, “signing” and “closing” play crucial roles in all mergers and acquisitions (M&A) transactions. The signing represents the official completion of the M&A transaction, while the closing is the point at which the transaction is finalized, and ownership of the company is transferred to the buyer.

Both stages present challenges that require special attention, but are vital to ensuring the success of the transaction. Understanding the distinctions between these processes, as well as the steps involved in each of them, is essential.

With this understanding of the steps involved, it is possible to overcome challenges and take advantage of opportunities to obtain maximum benefit from mergers and acquisitions operations.

It is important to highlight that due to the complexity of each stage, the monitoring of professionals specialized in M&A is crucial so that the entire process can be carried out in a transparent and safe way.

We at 3Capital Partners have a tradition of over 30 years in the market, guiding and monitoring transactions of all sizes, with the same objective of boosting companies.

Count on us to guide your assets on this business journey, count on 3Capital!