Closing M&A deals in today's difficult environment means keeping it simple.

• Author: Henry, Mark
• Position: LAW JOURNAL 2010

It is no secret that the mergers and acquisitions market remains challenged even as the economy is in the early stages of recovery. Deal volume is down by almost any measure. Buyers are understandably reluctant to put capital at risk, and sellers still recall the go-go days of years gone by with double-digit purchase-price multiples still dancing in their heads. When the two do come together on basic terms, the deals generally take longer to close, and there is an increased risk that the deal falls apart somewhere along the way. Against this backdrop, our advice on how to best navigate a deal through closing is to keep it simple. Below are a few suggestions for doing so.

Simultaneous sign-and-close transactions

Because the large public company M&A transactions receive most of the press, many professionals naturally assume that all deals should operate like the transactions they read about. One vestige of this is the concept that there needs to be an interim period between signing an acquisition agreement and actually closing the transaction. This is generally true for larger deals that require Hart-Scott-Rodino or other regulatory approvals (such as in the banking industry) in order to close. However, we often see initial draft letters of intent that contemplate a delayed sign-and-close transaction with little or no thought as to whether this is necessary or efficient.

Transactions structured with a delay between signing and closing require significant additional provisions in the acquisition agreement compared with the simpler simultaneous sign-and-close process. First and foremost is an entire section of conditions to closing that spell out when, and under what circumstances, each party is required to close the deal. This includes a "bring-down" of the representations and warranties in the agreement at closing (that is, a certification that the representations and warranties are also true and correct at closing) and a negotiation of whether the parties are obligated to close if one or more of them are no longer true.

This also may include closing conditions and other provisions related to financing. After the spate of failed deals in the last few years and subsequent litigation over financing provisions in acquisition agreements, the drafting and negotiation, of financing provisions for a delayed sign-and-close transaction are often extremely contentious and take a good deal of time to work through. Because we expect bankers to be much...