Legal Closing Checklist in Mergers and Acquisitions

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Legal Checklist for Closing an M&A Deal

Why do you need an M&A closing checklist?

Did you know that approximately 10% of all large mergers and acquisitions are canceled yearly? Out of over 2,500 deals announced between 2013 and 2018 and valued at over €1 billion, 265 deals were canceled.

What could cause these cancellations and high abandonment rates?

According to McKinsey, mismatched expectations around synergies and value creation, regulatory concerns, and political issues are the most common reasons for deal termination. Other reasons include poor due diligence, financing difficulties, etc.

All these can be caught and addressed in the closing process to save you financial losses, time, and effort.

Why Do You Need a Comprehensive M&A Closing Checklist?

A comprehensive checklist for closing a business sale or purchase agreement eliminates the financial costs of canceling a deal, reputational and share price issues, and wasted time and effort. More than just that, it also promotes:

  1. Organization and Efficiency: A closing checklist keeps track of tasks, ensuring a systematic and efficient process.
  2. Compliance and Legal Requirements: The checklist outlines necessary legal and regulatory obligations, minimizing legal risks and ensuring compliance.
  3. Due Diligence Completion: It tracks the completion of due diligence tasks, ensuring thorough assessment and risk identification before closing.
  4. Smooth Transition and Integration: The checklist includes tasks for post-closing integration, facilitating a seamless transition and maximizing synergies.
  5. Documentation and Record-Keeping: It is a comprehensive transaction record, aiding future reference, audits, and legal disputes.

The M&A process is hectic, with several moving parts, making it difficult to keep up with everything that may need attention. A checklist helps you see all you need to do in one place. You only have to tick each process off once completed.

Comprehensive Checklist for a Merger and Acquisition Closing Process

This checklist will be a clear roadmap for closing any deal, preventing costly oversights for all parties involved.

Begin the Process Before the Process Begins

You have to start planning for the closing process before the actual closing date. Prepare everything regarding the transaction and the required documentation. Gather financial statements, legal papers, due diligence reports, etc. Be proactive to avoid missing important details.

Handle the ‘Pre-Closing Process’ like a Boss

Pre-closing steps in an M&A transaction typically involve several key tasks and actions. Here are some common pre-closing steps:

  1. Negotiation and Execution of Definitive Agreements: Once you have reached a preliminary agreement, proceed to negotiate and finalize the definitive agreements, including the purchase agreement, merger agreement, or asset purchase agreement.
  2. Due Diligence: If you’re the buyer, conduct thorough due diligence on the target company’s financial, legal, operational, and other aspects. Review financial statements, contracts, intellectual property, litigation history, employee matters, and other valuation considerations.
  3. Legal and Regulatory Approvals: Identify and obtain the necessary regulatory approvals and consents, including antitrust clearances, approvals from government agencies, industry-specific permits, and licenses.
  4. Financing Arrangements: Secure the necessary financing. This may involve engaging an accountant or lenders, negotiating loan terms, and fulfilling any conditions precedent for obtaining the financing.
  5. Obtaining third-party consents: At this stage, you’ll identify contracts or agreements that require consent from third parties. Initiate the consent process with relevant parties, draft and negotiate terms, and document them
  6. Stakeholder and Board Approvals: Both buyers and sellers must hold shareholder and board meetings to secure the necessary consents and authorizations for the transaction.
  7. Employee and Labor Matters: Sift through employment contracts, benefits, retention plans, and potential redundancies. Communicate and consult employees to facilitate a smooth transition.
  8. Tax Planning: Consider the tax implications of the transaction and engage tax advisors to develop an optimal tax structure. This helps minimize tax liabilities and ensures compliance with applicable tax laws.
  9. Integration Planning: Develop an integration plan to facilitate the smooth integration of the target company into your operations. Identify key integration priorities, align processes and systems, and plan to retain and integrate employees.

These pre-closing steps are crucial in preparing for a successful M&A transaction. They ensure you’re well-prepared for closing and increase the likelihood of a smooth transition post-closing.

Checklist for the ‘Closing Process’

After successfully tackling the pre-closing process and preparing all the documents you must produce at the closing, the next step is tackling the actual closing head-on.

  1. Review and Execute Closing Documents: Carefully review and execute all necessary closing documents, including the definitive agreements, ancillary agreements, and other legal documents.
  2. Fulfill Closing Conditions: Ensure all closing conditions outlined in the agreements are satisfied or waived.
  3. Transfer of Ownership and Assets: Execute deeds, bills of sale, stock certificates, or other transfer documents as per the terms of the agreement.
  4. Payment of Purchase Price
  5. Closing Adjustments: Calculate and address any closing adjustments based on the final financial position of the target company.
  6. Release of Liabilities: Approve necessary releases and waivers to discharge any outstanding liabilities or obligations associated with the transaction. Obtain releases from lenders, creditors, or other parties.
  7. Closing Deliverables: Prepare and exchange the closing deliverables stipulated in the definitive agreements.
  8. Post-Closing Obligations: Identify and address any immediate post-closing obligations like employee notifications, customer or supplier communications, etc.
  9. Record-Keeping and Documentation: Ensure proper record-keeping by organizing and archiving all closing documents, agreements, and related correspondence.
  10. Closing Disclosure: Prepare and distribute a closing disclosure statement to all relevant parties, summarizing the key terms and outcomes of the transaction.

This is the stage where you sign and execute everything agreed upon in the transaction. What’s next?

The Post-Closing Obligations

Here are some common post-closing obligations that may arise after the completion of an M&A deal:

  1. Integration Planning: Develop and implement a comprehensive integration plan to merge the acquired company’s operations with the buyer’s, including aligning systems, processes, and cultures.
  2. Employee Transition: Facilitate the smooth transition of employees, including addressing any changes in roles, responsibilities, benefits, or reporting structures.
  3. Customer and Supplier Communications: Maintain open lines of communication with customers and suppliers, assuring them of continued support and addressing any questions or concerns due to the transaction.
  4. Financial Consolidation: Work with financial advisors to integrate financial systems and processes to consolidate financial reporting and ensure accurate revenues, expenses, and assets tracking.
  5. Synergy Realization: Continuously monitor and track the achievement of synergies and cost savings expected from the transaction.

Post-closing obligations often stem from the day-to-day handling of business activities or issues that weren’t properly addressed prior to closing or during closing.

Documents Required in Closing an M&A Deal

The documents required in an M&A transaction are numerous and may be difficult to keep up with. However, below is a complete list of documents both parties must provide or request.

  • Definitive Agreements (e.g., Purchase Agreement, Merger Agreement, Asset Purchase Agreement)
  • Corporate Resolutions
  • Disclosure Schedules
  • Due Diligence Documents
  • Closing Certificates
  • Bill of Sale/Assignment and Assumption Agreement
  • Consents and Approvals
  • Employment Agreements
  • Intellectual Property Assignments
  • Non-Disclosure Agreements
  • Escrow Agreements
  • Stock Certificates
  • Indemnification Agreements
  • Non-Compete Agreements
  • Tax Forms and Filings
  • Closing Statements
  • Regulatory Filings
  • Closing Date Certificates
  • Financial Statements
  • Board Meeting Minutes
  • Loan Agreements
  • Lease Agreements
  • Insurance Policies
  • Employment Benefit Plans
  • Employment Offer Letters
  • Governmental Permits and Licenses
  • Real Estate Deeds and Titles
  • Intellectual Property and Copyright Licenses
  • Environmental Assessments
  • Vendor and Supplier Contracts
  • Customer Contracts
  • Warranty and Guarantee Agreements
  • Shareholder Agreements
  • Earnout Agreements
  • Release and Waiver Agreements
  • Transition Services Agreements
  • Stock Option Plans
  • Restrictive Covenant Agreements
  • Regulatory Compliance Certifications
  • Security Agreements
  • Patent Assignments
  • Trademark Registrations
  • Service Level Agreements
  • Software License Agreements
  • Employment Policy Handbooks
  • Financial Projections
  • Compliance Certificates
  • Closing Memorandum
  • Affiliate Agreements
  • Affidavits of Title

While all this may not be necessary depending on the industry and type of M&A, this list shows you a comprehensive list of documents you’ll need to prepare for.

You Need an Attorney to Protect Your Interest

At Calkins Law Firm, we specialize in providing comprehensive legal support from start to finish, eliminating unnecessary delays and post-closure issues.

With more than 100 years of combined business law experience, our team conducts thorough due diligence to uncover potential risks and ensure a seamless transaction. We prioritize your best interests, striving to maximize value and minimize pitfalls.

Don’t leave your M&A deal to chance. Trust the professionals at Calkins Law Firm and experience ease. Send us a message today for a free consultation.

Conclusion

This closing checklist identifies the parties involved in the transaction and the specific documentation required from each party at the closing.

This includes necessary third-party consents, corporate resolutions authorizing the transaction, updated disclosure statements, bills of sale, assignment and licensing agreements, and deeds.

With this detailed checklist, you’ll be better prepared with all the essential documents for the closing. It includes integrated notes with important explanations, and drafting and negotiating tips.