A guide to what happens after closing
You might think closing day means saying goodbye to your business forever.
It seldom works out that way, though:
- You probably have to deliver transition services to your buyer.
- You might still be awaiting conditional payments after closing.
- You're on the hook for representations and warranties.
- (And we'd love to share your acquisition story!)
Below is a brief guide to tying up these loose ends to make you and the buyer happy.
Deliver on your promises post-acquisition
Your buyer will likely have asked you to help them transition to new ownership, formalized in the APA as transition services.
Transition services are usually limited to a period of time after your acquisition closes, varying from 30 days to one or two years.
You might even have agreed to stay on after acquisition to work within the business. For example, if you agreed to an earnout, you have a vested interest in the company hitting its performance goals. You might not want to leave that to the buyer's expertise alone.
Other example transition services include:
- Consultation services (answering questions and so on)
- IT or software services (maintaining or updating code, for example)
- Participating in customer or employee meetings
- Training the buyer and their employees on how to run the business
Ensure you deliver the services as agreed in your APA so the buyer is reassured and confident about running the business themselves.
Request post-closing payments
Acquisitions come in many shapes and sizes. You might have negotiated:
- an all-cash deal on closing
- a closing payment plus future payments when you meet certain conditions
- a closing payment plus periodic payments under a seller financing agreement
Ensure that you meet the conditions for and request post-closing payments as soon as they become due.
- If you agreed to a seller holdback to offset the risk of pending litigation, request payment through your dashboard once the case is resolved in your favor.
- If you agreed to an earnout, request payment when the business hit its earnout milestones such as a revenue or profit goal.
- If you agreed to seller financing, refer to the seller financing agreement in your APA and contact the buyer for repayments directly.
Prepare for the unexpected
You'll have made several claims about your business when selling it. While you might've made those claims in good faith, you could have mistakenly missed something important.
Your buyer is aware of this risk and minimizes it under the representations and warranties clause of your APA.
Without getting too legal, representations are statements of fact and warranties are your promises the facts are true. It's a kind of buyer insurance that lasts for the duration of the representations and warranties survival period (six months to a year).
If something unexpected happened post-closing, you might have to resolve the situation or even indemnify the buyer if they've suffered a loss (often only up to the value of the purchase price and if the loss happened within the survival period, depending on the deal).
Some buyers use seller holdbacks to ensure the seller can indemnify them for post-closing claims.
Tell your story
If you're interested in participating, drop our head of marketing, Roger Tung, a line on email@example.com.