Signing

The moment when the parties formally sign the SPA is usually called the signing. Signing is not necessarily the moment of transfer of ownership over the shares (closing). If parties reach an agreement quickly, the moment of signing and closing may coincide, but often a whole period of time elapses between the moment of signing and closing. There can be various reasons for this:

• the buyer wishes to carry out an additional bookkeeping investigation with a possible price increase (exceptionally a price reduction) according to fixed formulas;
• the target company still needs to be cleaned up. Think of a private house that is still in the company and where the owner of the shares still lives and wants to continue to live. This private home will first have to be removed from the company via a sale or a partial demerger. Or after an audit, there is a problem with a building permit or a tax return. Then a buyer could say: “I am willing to buy, but first you have to put these things in order. It is only when that is successful that I will buy the shares”;
• a possible competition notification. If the deal is sufficiently

large in size, you may first need permission from the competition authorities. It will be verified that competition is not affected by the fact that two companies are merging. This has to be done before the closing. So it is best to stipulate in a pre-agreement that you agree to the sale, but that the transfer of ownership will only take place when the competition authorities approve the transaction.

Generally, a takeover agreement will only be signed under certain conditions precedent and/or pre-closing commitments. A condition precedent is an obligation that only becomes effective after the occurrence of a pre-defined future and uncertain event. Only when all conditions precedent are fulfilled or waived by the buyer, the transaction will be closed and the ownership of the shares will be transferred in return of payment of the set price. Pre-closing commitments actually means that before the transfer of shares, the seller first puts a few things in order as described above.

The use of resolutory conditions in takeover agreements is rather rare. The obligation will be extinguished ex tunc when a predetermined future and uncertain event has occurred or, depending on how the clause is drafted, has not occurred. For example, a clause that stipulates that in the event of bankruptcy

of the target company, the agreement will be dissolved. If the resolutive condition is fulfilled, the consequence will be that the situation is restored to its original state. A restoration will mean the return of the shares and the repayment of the purchase price. In practice, it is often unrealistic to return to the original situation in the case of a takeover, which explains the rather rare use of resolutive conditions in takeover agreements.

Because the moment of signing and closing do not coincide in most cases, the buyer needs extra protection in the meantime. In the sense that at signing, there is an agreement between price and object and the buyer knows where he stands. But as long as the deal is not closed, so as long as he is not the owner of the shares, anything can happen in that company. The buyer can try to protect himself during that period by:

• asking the seller to keep him informed about everything.
• stipulating an ordinary course of business in the acquisition agreement. This is a clause whereby the seller may only do the usual things to maintain the business. For example, it can be agreed that between signing and closing, the seller will not enter into any major loans without the prior consent of the buyer.

• stipulate a material adverse change (MAC). This is a clause by which the buyer reserves the right to withdraw from the deal in the event of an external or internal significant and unusual event with a major negative impact that fundamentally alters the value of the company beyond the control of the buyer.
• a check on the evolution of the representations and warranties made. If some time has already passed since the signing, the buyer can ask the seller to confirm that the company still looks the same as it did at the time of the signing. If there have been changes, then to work out an arrangement regarding the distribution of risks.