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Case StudiesDeal Closing
Deal closing is the final stage of the transaction process when the loan agreement is executed, and the acquisition is completed. The transaction passes through several stages where the deal is vetted, diligenced and approved by the buyer and the acquisition financing provider, before deal closing occurs. Along this path, there are a multitude of questions and information requested to confirm the buyer’s expectations of the acquisition. The diligence process includes financial accounting, competitive industry, management quality and systems integrity screening that requires involvement of a diligence team of service providers. As the deal travels through this process, the acquirer and the lender gain greater understanding which allows them to proceed to the deal closing. The deal closing involves three distinct legal teams representing the buyer, seller and the lender. It also involves the principals from each side as well as their investment bankers. At this point, deal issues are filtered through a legal lens due to the involvement of the lawyers which can make it challenging for businesspeople to manage. Communication between the business teams is essential to ensure that the legal discussion does not overpower the deal. The investment bankers should ensure that businessperson communication is focused, timely and conclusive. Ultimately, the businesspeople should control the deal closing and not allow the lawyers to usurp the deal closing timeline.
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Key Points of a Deal Closing
A detailed process timeline is essential to have an efficient deal closing. The timeline should be grounded in real world estimates based on each participants’ availability and responsiveness. The deal process should be well integrated and understood by all. All businesspeople should be involved from the beginning to the end. Unless the businesspeople and the investment bankers are involved throughout the entire process, the deal could change, or the deal closing may go awry. Investment bankers need to ensure that they are providing transaction support through all phases of the process. When the lawyers get involved at the end, there is a tendency for all businesspeople to think the deal is effectively closed, which is a mistake. The businesspeople need to ensure that the lawyers are working within the process framework of the deal process.
Reasons why Deal Closings Fail
Communication and accountability are the drivers of a deal closing. Accountability requires a businessperson with authority who carefully maps all required actions and responsible parties. Often when a deal reaches the deal closing stage, the businesspeople get overly exuberant and believe the closing is right around the corner, leading them to let up.
This can lead to delays over minor issues which require proactiveness and loss of process control to the lawyers. The loan agreement, while a legal document, is still a business contract. All businesspeople involved in the deal closing need to ensure that its terms and covenants are acceptable and conform to the original business deal in the term sheet.
Frequently Asked Question
1. How long does the average deal closing take?
It varies based on the complexity of each deal, but most deals that 75 days to close from start to finish.
2. How can I ensure that I have 100% certainty of a deal closing?
There is no way to guarantee closing due to the fact that business diligence goes to the very end. Something negative could always arise that tanks the whole deal. The best way to ensure a deal closing is to have a back-up lender ready to move if your first lender falls over.
3. What are some of the most common reasons deals fail during the closing stage?
Background issues that were not disclosed upfront during background research are a big reason that deals fail. Faltering financial performance during due diligence is another reason that deals fail.
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