Closing Conditions
The events, deliveries, and circumstances that must be satisfied (or waived by the benefited party) before either party is obligated to close an M&A transaction. Allocates signing-to-closing risk and provides termination rights when conditions fail.
Closing conditions are the specific events, deliveries, and circumstances that must be satisfied (or waived by the benefited party) before either party is obligated to close the transaction. The closing conditions allocate signing-to-closing risk and provide each party with specific termination rights when conditions fail.
Standard buyer conditions
(1) Bring-down of seller representations (reps remain true at closing, subject to materiality qualifiers); (2) compliance with covenants; (3) absence of MAC; (4) third-party consents and regulatory approvals; (5) delivery of specific documents (good standing certificates, secretary's certificates, opinions of counsel); (6) financing condition (rare in middle-market deals; common in highly-leveraged transactions); (7) employment agreements with key personnel.
Standard seller conditions
(1) Bring-down of buyer representations; (2) buyer compliance with covenants; (3) regulatory approvals; (4) buyer delivery of purchase price.
Mutual conditions
(1) Regulatory approvals (HSR, CFIUS, industry-specific approvals); (2) absence of injunctions; (3) consents.
Drop-dead date
Most agreements include an "outside date" (drop-dead date) by which closing must occur or either party may terminate. Typical: 90 days, sometimes extended for regulatory delays.
Materiality qualifiers
Reps brought down at closing typically use "in all material respects" or "MAC" qualifiers to prevent the buyer from refusing to close based on trivial inaccuracies. Carefully drafted agreements specify whether existing materiality qualifiers in the reps "double-count" with the bring-down qualifier (typically "no double materiality" provisions exclude double-counting).
Closing conditions are negotiated alongside reps, indemnification, and termination rights as an integrated risk-allocation package. A buyer that gives ground on indemnification often holds firm on closing conditions; a seller that resists strong reps often accepts tighter closing conditions in exchange.
Companion article: Selling Your Business in Texas