Signing and Closing: The critical interim phase in M&A Transactions

Selling a company is a complex process involving multiple steps and legal formalities. After signing the purchase agreement (Signing), which must be notarized for corporations, certain agreed-upon conditions precedent must be fulfilled before the transfer can take place.

Conditions that typically need to be fulfilled before Closing include, but are not limited to:

• Obtaining necessary regulatory approvals, such as from trade offices, building authorities, or antitrust agencies
• Consents from third parties, such as spouses under § 1365 BGB (German Civil Code), co-shareholders, or contractual partners/creditors under a “Change of Control” clause
• Registration of the change in the commercial register
• Waiting for the balance sheet date to comply with specific deadlines or valuations
• Payment of the agreed purchase price

Only after fulfilling these conditions does the economic ownership transfer to the buyer (Closing). Signing involves the agreement on the sale of shares and the contractual obligation to transfer ownership, while Closing marks the actual economic transfer.

Why cooperation and trust matter now more than ever

If exceptional measures or decisions are coordinated or at least communicated with potential buyers during the negotiation phase, this becomes even more important between Signing and Closing. In this phase, the seller remains formally responsible and in charge of decisions. To avoid jeopardizing the transaction at the last minute—such as through buyer termination rights—close coordination and collaboration between the parties is essential. The seller should be aware of their heightened duty of care. It is strongly recommended to document all communications and any consents in writing. These points clearly illustrate why the period between Signing and Closing can be decisive.

Employee communication during the transition: Sensitivity is key

During the period between Signing and Closing, the question often arises as to when employees should be informed about the change of ownership. There is no one-size-fits-all solution. Frequently, sellers and buyers opt for a joint information session, such as a company meeting, typically held immediately after Closing. For buyers, a major concern is retaining key employees after the acquisition. Therefore, tact and sensitivity are essential—not only in presenting new plans but also in handling employees with care. Sellers, who often remain involved through a handover period or advisory agreement, can provide valuable support in this process.

If the sale does not occur via share transfer (Share Deal) but through the sale of assets (Asset Deal), certain conditions precedent must also be fulfilled after the contract is signed. Special attention should be paid to the fact that existing employment relationships generally transfer to the buyer in such cases, and potential objections by individual employees must be considered and awaited.

Purchase price financing as the key factor

A particularly critical aspect is the purchase price payment, especially when it is predominantly financed by banks. The conditions set by financing institutions should be carefully considered when defining Closing conditions. It is generally advisable to prioritize financing highly. Sellers should therefore verify the buyer’s financing capability early on and obtain a reliable financing confirmation prior to Signing. Nothing is more frustrating than encountering restrictions or having to unwind the deal afterward.