In the world of business, mergers and acquisitions (M&A) are not just transactions but strategic decisions that can redefine the future of the companies involved. Welcome to our series devoted to the importance of process through the complexities and nuances of M&A.
While the economic terms and transaction structure are crucial, the process followed to get to the closing is often misunderstood or overlooked. This series aims to offer a deeper understanding of the M&A process in middle-market and small-market deals and its impact on both buyers and sellers. A well-planned and executed M&A process contributes to a smooth and efficient transaction, maximizes value for sellers, and ensures a seamless transition and future growth. Conversely, a poorly executed process can lead to misaligned expectations, value deterioration, and operational inefficiencies.
Join us as we explore each stage of the M&A process, from assembling a deal team to post-closing deliverables. Stay tuned as we roll out the rest of our series in the coming months ahead.
- Part 1 – The Importance of Process: Crafting Success in M&A Transactions
- Part 2 – The Art of NDAs, Initial Discussions, and LOIs
- Part 3 – The Power of Letters of Intent and Term Sheets in M&A
- Part 4 – Bringing it Home: Negotiating the Deal Documents
- Part 5 – The Last Lap: Strategies for a Smooth M&A Closing Process
- Part 6 – After the Ink Dries: Understanding Post-Closing Deliverables
Part 5: Strategies for a Smooth M&A Closing Process
While most of the parties’ focus tends to be on the purchase agreement and other key contracts related to the overall transaction, in many deals there are a number of other agreements and documents that must also be drafted and negotiated. In asset sales, these ancillary agreements include bills of sale, assignments of intellectual property rights, and assignments of the seller’s contracts to the buyer. In equity deals, there are documents evidencing the transfer of stock or the termination of options. In addition, most deals will include a host of closing deliverables from both sides (but more so from the seller’s side), such as evidence from both parties that the transaction has been authorized, resignations from officers and directors of the company, tax documentation, escrow agreements, and estimated balance sheets as of the closing where there is a purchase price adjustment.
Keeping track of all the moving pieces can be extremely challenging. Experienced M&A attorneys frequently use a tool called a closing checklist to make sure nothing falls through the cracks. This is the lawyers’ most important document in the M&A process. Good closing checklists track all of the documentation, actions, and filings required to close, the party that is responsible for each document, and the current status of each document and activity. The closing checklist should be frequently updated, and in the days approaching the closing, the checklist is often updated multiple times per day. Many clients never see this document, but it’s the roadmap for the entire transaction.
As the closing date approaches, activity is often fast and furious to finalize all documentation and due diligence. Due diligence typically doesn’t end until right before closing, because a business is always in motion and the sellers must continue running the company’s business as the deal moves forward. Sometimes, the purchase agreement is negotiated right up to, or even on, the closing date. That’s not an ideal scenario, but M&A transactions can be complex and involve a number of different issues for the parties to resolve.
Closings can take several different forms. Many times, the closing is handled remotely, but some deals require in person closings, such as SBA-financed transactions. If the closing is handled remotely, there are usually two methods. The first involves the parties signing the transaction documents through a service like DocuSign on the closing date. In the second method, the lawyers for each side collect executed signature pages from their respective clients, and send those signature pages to opposing counsel to be held in escrow until the closing. The latter method is more popular and generally results in less closing day surprises.
The closing itself can be handled through the parties releasing signature pages via email, but more often than the parties will schedule a closing call. These calls can be formal, but many times the calls are relatively brief and are focused on congratulations for a major milestone achieved by both the buyer and the seller. Immediately following the formal closing by exchange of signature pages, the buyer will initiate a wire transfer of the cash to be paid at the closing to the sellers.
While the vast majority of the work is completed at the closing, the deal process isn’t truly over at this point. In our next and final installment in this series, we’ll introduce these post-closing items.
About The Author: Vaughn Marshall
Contact Us
If you’re considering buyer or selling a business, we’d love to help. We can provide you with a complete range of corporate legal services to help you achieve your goals. Email us at info@doidacrow.com or call 720-306-1001 to set up a free consultation with one of our team members.
Meet Our Team
We’re the team that Colorado owners and entrepreneurs trust when it comes to guiding your business in the right direction. Let us do the same for you. Our collaborative, thoughtful lawyers provide cost-effective, practical solutions across a wide range of industries. Click here to meet our team.