Closing the deal

You have planned, you are ready and you have gone to market. Offers are in and you have progressed the negotiations to a point where it is now time to ‘get on with it’ and execute. Closing a deal relies on maintaining momentum and now is the time to dive into the detail. This can be a lot of hard work!

At this point you are several months into the transaction and ‘deal fatigue’ is becoming a real factor weighing on the entire process. Even a carefully considered and diligent process can still miss on execution. Again, thinking through the deal logically will help you close. Consider the following:

What is the transaction dependent on?

  • Is there a material contract that needs to be assigned? Will these stakeholders cause trouble? When will you engage with them?
  • What approvals do bidders need to sign binding agreements? Are the people making these decisions briefed and available? Ask your bidders this, often.
  • What information can be provided to remove the need for additional conditions precedent?
  • Is the vendor team available to meet bidder requests? Even with comprehensive vendor due diligence the process can identify some unforeseen issues. The key is buy-in from the team so they are committed to responding quickly.
  • Is a Transitional Services Agreement required? What are the terms of this agreement?
  • Have the key integration (separation) issues been adequately diagnosed and planned for? If the buyer and seller are not ready, the deal risks value leakage.

Pre-empt and estimate adjustments to the purchase price

  • Give your bidders every opportunity to pay you. Prepare estimates of working capital, final debt payout figures and any other flow-of-funds items to make it easy for bidders to review and accept the completion payment amount.
  • The closing mechanism (e.g. ‘locked box’ or completion accounts) is a very important detail that must be very clear before close. A careful review of the Sale and Purchase Agreement in conjunction with estimated closing figures is critical to ensure economic risk and reward transfers from the seller to the buyer as intended.
  • Be very specific on high value and/or high judgement areas. Valuation of inventory protocols should be agreed up front so there are no surprises. Due diligence should inform this methodology.

Keep the momentum

  • Providing trading updates during due diligence can keep bidders focussed. Can the finance team close the books at month end a little faster? What normalisation adjustments are required (for consistency with due diligence information)? Is there a seasonal earnings peak or trough that bidders need to be advised of?
  • Set up a dedicated project team to monitor the timetable, triage any issues and resolve. Your advisors and your team need to work together to progress to close.

Avoid last minute drama

  • Often times there are last minute issues to work through, such as
    • Warranty and Indemnity (W&I) issues, in particular getting W&I insurance. This could add additional diligence requests, impacting timetable.
    • Accounting issues, earn-out protections and completion calculation methods, which are often added late in the process, and can be a cause for great debate, right at the end of the deal. Obtaining adequate protection is critical, which is best achieved when legal and accounting advisers work together on the sale agreements.
    • Stocktakes and other closing procedures, which need to be considered in detail, particularly if completion is not at a regular month, quarter or year end. Can these be undertaken off-cycle, and if so how reliable can they be?
  • Complete a ‘dry run’. Signing is great, but completion counts. If time permits, legal teams can meet a couple of days ahead of the completion date to perform a dry run of completion activities. Ideally there will be continuous communication along the way, but a dress rehearsal will ensure any last minute issues can still be resolved.

Ensuring your accounting, M&A, legal advisers and financiers are on the same page and are involved early, in the key dependencies, documents and issues on the transaction will give you the best chance of a clean, on time, completion.

This article is part eight of the ‘Transaction lifecycle’ series.

Part one: Don’t let a poorly planned transaction destroy value, or your business

Part two: Assessing the strategy – why transact?

Part three: Assessing synergies – when is a combined business more valuable than the sum of the parts?

Part four: Driving success (and minimising risk) of transactions with focussed due diligence

Part five: Assessing and refining the deal

Part six: Logic before emotions – the key to successful negotiation

Part seven: Pre-completion planning – timing is critical


Samuel McCombe

Samuel McCombe
Partner, Melbourne
T: +61 3 9038 3186
E: smccombe