Subsequent closings: Overview, definition, and example

What are subsequent closings?

Subsequent closings refer to additional closings or finalization events that occur after the initial closing of a transaction or agreement. These events typically involve the completion of specific conditions, obligations, or stages of a transaction, such as the sale of assets, shares, or property. Subsequent closings are often part of larger deals, like mergers and acquisitions, where the transaction is carried out in phases, and certain conditions must be met before each closing can occur. Each subsequent closing generally involves further transfers or actions that complete the overall deal.

For example, in an acquisition of a company, the initial closing might involve the transfer of ownership of shares, while subsequent closings could involve the transfer of assets or resolution of regulatory approvals.

Why are subsequent closings important?

Subsequent closings are important because they help facilitate large, complex transactions by breaking the process down into manageable steps. They ensure that all conditions or requirements are met before the transaction can move forward, helping to reduce risk for the parties involved. These closing events allow parties to address issues such as regulatory approvals, financing arrangements, or post-transaction integration processes, ensuring that the overall deal proceeds smoothly and according to plan.

For businesses, subsequent closings provide an opportunity to ensure compliance with legal and financial conditions, and to ensure that each step in the transaction is executed as expected before moving forward.

Understanding subsequent closings through an example

Let’s say Company A is acquiring Company B. The first closing may involve the transfer of shares and payment of a portion of the purchase price. However, the agreement may stipulate that subsequent closings will occur over time, such as when certain assets (e.g., real estate or intellectual property) are transferred, or when regulatory approvals are granted. These subsequent closings ensure that all aspects of the deal are finalized in stages.

In another example, a real estate deal may have an initial closing where the buyer secures financing and takes possession of the property. Subsequent closings could then occur to transfer additional units or rights related to the property at later dates.

An example of a subsequent closings clause

Here’s how a subsequent closings clause might appear in a contract:

Conclusion

Subsequent closings are essential in large or phased transactions, where multiple steps or conditions need to be fulfilled over time before the transaction is fully completed. They help manage complex deals by breaking them into smaller, more manageable events, ensuring that all terms and conditions are satisfied. Properly structured subsequent closings allow businesses to ensure compliance, address potential issues, and complete the transaction smoothly and efficiently.

Frequently asked questions (FAQs)