These two steps can occur simultaneously when the transaction is straightforward. However, for practical reasons, they are often separated. The purchase agreement is frequently subject to conditions precedent; consequently, closing can only take place once these conditions have been fulfilled or waived.
Furthermore, signing is often a tedious process that parties prefer to conclude prior to closing. The widespread adoption of Anglo-Saxon-style contracts, along with numerous annexes—which, forming an integral part of the agreement, must also be initialed—means that the documentation to be signed frequently resembles a phone directory, even for small to mid-sized deals.
When you add the fact that last-minute adjustments are sometimes made to the wording, it is easy to see how the signing stage can become time-consuming and stressful. A lengthy discussion on the legal documentation will almost certainly have preceded the signature. This negotiation phase in its own right must be guided by specialized M&A lawyers whose role is to defend their client's interests as effectively as possible, while striving to find a balanced compromise that allows the transaction to reach a smooth conclusion.
While exchanging successive drafts via email (with tracked changes in redline/markup) can be very convenient, deadlocks may still arise. Bringing all parties and their legal counsel together in a face-to-face meeting often fosters better mutual understanding and facilitates decision-making without anyone losing face.
Another reason for separating signing and closing relates to the role of the financing bank. Banks typically insist on having their legal departments review the signed documentation to ensure it presents no unexpected risks to them as the lender. It is therefore common for banks to require a review of the final agreements before disbursing the loan proceeds.
At closing, the transfer of shares is formalized either by an entry in the company's share register (if the shares are nominative) or via an electronic securities transfer between brokerage/bank accounts (if the shares are dematerialized). For those still holding paper bearer shares, the window to dematerialize them is effectively closing. A progressive dematerialization tax was introduced on January 1, 2012. As of January 1, 2014, holders of paper bearer shares forfeit their voting and dividend rights. Furthermore, starting January 1, 2016, any paper securities whose owners remain unidentified will be sold for the benefit of the Caisse des Dépôts et Consignations (Deposit and Consignment Office). While owners may still claim the net proceeds of such sales, an annual fine of 10% per year of delay will be levied.
The payment of the purchase price serves as the consideration for the transfer of shares. Payment can be executed via wire transfer or cashier's check (certified check). The main advantage of a certified check is that it allows payment to be settled securely and simultaneously with the transfer of title. A straightforward closing certificate or ratification document can then confirm that the purchase agreement has taken full effect and issue a formal release (quittance) to the buyer for the payment of the purchase price.
Even if these formal steps are sometimes perceived as tedious or overly granular, it is essential to execute them with meticulous care. The goal is to prevent post-acquisition surprises, which are invariably detrimental to both seller and buyer. Ultimately, the best contract is one that has been thoroughly crafted and negotiated—so well that it never needs to be pulled out of a drawer again.
Illustration: Clou
