closing conditions

What are Closing Conditions?

Closing conditions are the requirements that must be satisfied before a mergers and acquisitions (M&A) deal can be legally completed. They sit between the signing of the deal agreement and the formal transfer of ownership at closing.

In simple terms:

  • Signing means the buyer and seller agree to the transaction terms
  • Closing is when the deal actually happens.

Closing conditions help ensure that important legal, financial and regulatory issues are resolved before control of the business changes hands. These conditions are usually set out in the share purchase agreement (SPA), merger agreement or asset purchase agreement (APA).

Why are closing conditions important?

M&A deals often involve risks that cannot be resolved immediately at signing. For example, the parties may still need regulatory approvals, financing arrangements or third-party consents before the transaction can proceed safely.

Closing conditions protect both sides by ensuring the deal does not complete until these key requirements are met.

They help:

  • Reduce legal and regulatory risk
  • Prevent ownership transfer before approvals are secured
  • Protect buyers from major changes in the target business
  • Give sellers clarity on what must happen before completion
  • Provide a framework for resolving outstanding issues

Without clear closing conditions, companies risk completing transactions prematurely or facing disputes later.

Common types of closing conditions

Closing condition

Purpose

Regulatory approvals

Obtain competition, antitrust or foreign investment clearance

Shareholder approvals

Secure required votes from shareholders or boards

Financing conditions

Confirm the buyer has secured funding

Material adverse change (MAC) clauses

Protect against significant deterioration in the target business

Accuracy of reps and warranties

Ensure seller statements remain true at closing

Covenant compliance

Require the seller to operate the business normally before closing

Third-party consents

Obtain approvals from lenders, customers or suppliers

Some transactions may involve dozens of separate closing conditions depending on complexity and jurisdiction.

Regulatory approvals and closing

Regulatory approval is one of the most important closing conditions in larger transactions. For example, under the EU Merger Regulation, some acquisitions cannot be completed until the European Commission or national competition authorities approve the deal. Regulators assess whether the transaction could reduce competition unfairly or harm consumers.

Cross-border deals may also require:

  • Foreign direct investment approvals
  • Financial services regulator consent
  • Industry-specific approvals
  • National security reviews

Failure to obtain these approvals can delay or prevent closing entirely.

Material adverse change clauses

Many M&A agreements include a material adverse change (MAC) condition. This allows the buyer to reconsider the deal if a major negative event affects the target business before closing.

Examples could include:

  • Significant financial deterioration
  • Major litigation
  • Cybersecurity incidents
  • Regulatory investigations
  • Loss of major customers

How closing conditions work in practice

Once the parties sign the agreement, both sides begin working towards satisfying the closing conditions. Legal teams usually maintain detailed closing checklists covering:

  • Required approvals
  • Outstanding documents
  • Regulatory filings
  • Financing arrangements
  • Consents and waivers

Some conditions can be waived if both parties agree, while others are mandatory and cannot be bypassed.

The agreement will also include a “long-stop date”, which is the deadline by which the conditions must be satisfied. If this date passes without completion, either party may have the right to terminate the transaction.

Closing conditions vs closing deliverables

Closing conditions are often confused with closing deliverables, but they are different.

Closing conditions

Closing deliverables

Requirements that must be satisfied before closing

Documents or actions exchanged at closing

Focus on legal and regulatory readiness

Focus on executing the transaction

May prevent the deal from completing

Finalise ownership transfer

Often highly negotiated

Usually administrative

For example, competition approval is a closing condition, while transferring signed share certificates is a closing deliverable.

The role of due diligence

Due diligence helps identify which closing conditions are necessary. For example, the due diligence process may uncover:

  • Contracts requiring consent before transfer
  • Pending litigation
  • Regulatory approvals
  • Financing concerns
  • Compliance issues

These findings often shape the conditions included in the final agreement. A virtual data room (VDR) helps manage this process by centralising documentation, tracking approvals and maintaining audit trails showing which conditions have been satisfied.

Risks of poorly managed closing conditions

Weak management of closing conditions can create serious problems, including:

  • Delays to completion
  • Regulatory breaches
  • Financing failures
  • Failed transactions
  • Post-deal disputes

Clear communication, structured workflows and secure document management are essential to keeping the process moving efficiently.