Signing and Closing: Why They Are Two Different Days

Signing is the day the agreement binds both sides. Completion, also called closing, is the day ownership and money actually change hands. Between them sits the conditions period, nine weeks on the Harivansh Packaging Limited purchase, in which the conditions to completion get satisfied. Collapse the two days into one and nobody would ever spend on an approval before being obliged to.

Here is the sentence that trips up almost every reader coming to a transaction for the first time. A deal is announced, the announcement is worded with great confidence, both sides put out a statement, and absolutely nothing has moved. No share has changed hands. No rupee has been paid. The sellers still run the business they have just sold, exactly as they ran it the day before, and they will still be running it in a month.

The delay is not a technicality and it is not lawyers being careful. Signing and completion are two separate dated events because the work that has to happen between them cannot honestly begin until somebody is obliged to do it. Every other feature of the gap is a consequence of that one sentence.

The shape of this is familiar from ordinary life, even to somebody who has never seen a transaction. Consider a flat being bought in an Indian city. An agreement to sell gets signed weeks before anybody hands over keys. In those weeks the buyer arranges the loan, somebody checks the title, the society is asked for its consent, and the seller keeps living in the flat and keeps paying the electricity bill. The agreement is real from the day it is signed. The flat is not the buyer's until the day of registration and payment. Nobody thinks this is strange, and nobody calls the agreement fake because the keys have not moved.

A corporate purchase is that same structure at a larger scale and with more moving parts. Harivansh Packaging Limited is buying one hundred per cent of Sundarban Polymers Private Limited. Devyani Kulkarni is the chief financial officer of Harivansh Packaging Limited, and Ashwin Rege leads the transaction team.

What actually happens on the signing day, and what does not?

On the signing day the two sides put their names to the definitive agreementThe binding document the parties actually sign. The contents of that document, and the promises each side makes in it, are set out under the definitive agreement itself. For the two days, what matters is that the document binds from the day it is signed. and become bound to each other. Three things get fixed on that day and stay fixed. The price mechanism is fixed, meaning the formula that will eventually produce a rupee number is settled and cannot be reopened. The conditions are fixed, meaning the list of things that must be true before either side has to complete is closed. And the obligation to complete is created, meaning each side now has a duty to the other that did not exist the previous afternoon.

Now the part that reads as wrong on first encounter. Nothing that a reader assumes happens at signing actually happens at signing. Ownership of Sundarban Polymers does not move. The Rs 1,140 crore does not move. The buyer cannot decide what the business does, cannot hire anybody, cannot stop a hire, cannot change a price list and cannot veto next month's plan. The buyer holds a contractual right to receive the business on a future date, and the sellers hold a contractual right to receive money on that same future date, and until that date arrives neither right has become a thing anybody can touch.

Notice what that does to the buyer's position. From the signing morning onward, Harivansh Packaging Limited carries the full economic interest in an asset it does not control. If the business has a poor quarter in those weeks, that is a problem the buyer inherits and cannot prevent. The mismatch is uncomfortable, everybody involved knows it is uncomfortable, and the whole apparatus of the conditions period exists to keep the discomfort inside a boundary rather than to remove it.

The signing day does something to the deal team as well, and it is not what people expect. Signing does not reduce the workload. Signing changes the subject of the work. Before signing the work is negotiation. After signing the work is administration, chasing and reporting. The people are often the same people and the hours are often similar. The similarity is exactly why the temptation to treat signing as the finish line is so strong and so expensive.

What happens on the completion day, and why is it not a negotiation?

CompletionThe day the transaction is performed rather than promised. Shares are transferred, money is paid and the paperwork is exchanged. Also called closing. is the day the promises made at signing get performed. The shares in Sundarban Polymers transfer to Harivansh Packaging Limited. The money leaves the buyer and reaches the sellers. The completion arithmetic gets applied to what the accounts actually show rather than to what was assumed nine weeks earlier. Board resignations take effect, new directors are appointed, statutory registers are updated, and a large bundle of deliverables changes hands in a single sitting.

Completion is an administrative event worked through a checklist, not a negotiation, and anything still being argued about on the completion day is a condition somebody failed to close out in the nine weeks available. That is a demanding standard and it is meant to be. A well run completion is boring. Somebody reads down a list, each line has a person against it, each person confirms their line is done, and when the last line is confirmed the funds are released. If instead the morning is spent on a phone call about whether a counterparty consent is good enough, the transaction did not suddenly develop a problem that day. The problem was there for weeks and nobody was watching it.

The household version is the registration appointment for that flat. On the day, nobody expects to renegotiate the price. Everybody expects to sign in the right places, hand over the draft, collect the keys and leave. If the loan has not been sanctioned by that morning, the appointment does not fix the problem. The appointment only reveals it.

Why are the two days not one day?

Ask it plainly. The honest answer is not the one people give. The usual answer is that regulators are slow, and that is not wrong, but it is not the mechanism. The mechanism is about who is willing to spend money and effort, and when.

Some of the work between the two days simply cannot be done quickly. An application to an authority takes as long as it takes. A counterparty asked to consent to its contract moving has to read the request, take its own advice and put it to somebody senior. Lenders documenting a large facility take weeks over it. None of that compresses just because two chief executives would like it to.

But slowness alone would not force a gap. The second half is what does. Nobody spends real money and real management time on an approval application while the other side is still free to walk away, so the slow work cannot honestly begin until an obligation exists to make it begin. Preparing an application is expensive. Asking two counterparties for consent is worse than expensive. The request itself tells them a transaction is happening, and that information cannot be taken back and changes their negotiating position at once. A seller will not let a buyer make that call while the buyer can still change its mind on a Tuesday for no reason.

So the two sides make a trade, and it is worth naming as a trade rather than as a rule. Both sides accept a defined period of uncertainty in exchange for being able to start the slow work at all. The buyer accepts that it carries economic interest without control for those weeks. The seller accepts that it must keep running a business it has already agreed to hand over. Both accept that the transaction can still fail. In return, the applications go in, the consents get asked for, the lenders draw their paper, and there is a realistic prospect of anybody ever getting to a completion day.

Come back to the flat. The buyer does not pay for a title search before the seller has agreed to sell. If the seller sells to somebody else on Thursday, that money is gone. The seller does not go to the society for its consent before the buyer has committed. The society would then know the flat is going, and would treat the request as leverage. Both of them wait for the agreement. Then both of them start spending. The gap between the agreement and the keys is not delay. The gap is the only window in which that spending makes sense.

What is a Closing Condition, and what makes a clause into one?

A closing condition is a contractual test that must be satisfied before either side is obliged to complete. The condition is the device that makes the gap survivable. Without it, a buyer signing on Monday would be bound to pay on a future date whatever happened in between, including the failure of an approval it cannot control. With it, the obligation to pay is suspended until named things are true.

The word to hold on to is test. A condition is not a wish, a hope, a plan or a statement of good intentions. A closing condition has three required properties, and a clause missing any one of the three is not a condition at all, it is a hope written down.

The first property is that it is objective enough to be tested. Somebody has to be able to look at the world on a given morning and answer yes or no without an argument. The approval has been granted or it has not. The consent letter exists or it does not. The second property is that somebody is responsible for satisfying it. A condition with no named owner is a condition nobody will chase, and a condition nobody chases is one that gets discovered in week eight. The third property is that it carries a consequence. If the day arrives and the condition is not met, something must follow: the obligation falls away, or a right to walk arises, or a stated remedy applies. A test with no consequence is decoration.

Running the three conditions on this purchase through those properties shows the shape working.

Look at the middle row, the instructive one of the three. A material adverse change test only becomes a usable condition because the paper defines the standard. The definition of that standard, and the argument that goes into drafting it, sit with the definitive agreement. The drafting exists precisely to drag a vague idea across the line into something testable.

Approval vs Closing Condition: which of the two can anyone waive?

The approval and the closing condition are the pair collapsed most often, and collapsing them produces confident nonsense. Take the two separately first, before drawing any contrast between them.

An approval is an event in the world. An authority considers something and grants it or does not. An approval exists outside the transaction entirely. Nobody signing the agreement has any power over whether it is granted, how long it takes or what it says. The approval happened or it did not, and the parties are spectators to that fact.

A closing condition, as the previous part set out, is a line in a document. The condition is written by the two parties, binds only the two parties, and says that neither side has to complete until a stated thing is true. Where that stated thing is an approval, the condition points at the approval and says: until this exists, the obligation to complete is suspended.

Now the contrast, and the consequence that follows from it. The party a closing condition protects can waiveTo give up a right held under a contract, so that the other side no longer has to satisfy it. A right can be waived only by the party it exists to benefit. it and complete anyway. The authority granting an approval is not in the transaction, so no party to the transaction can waive the approval itself. A buyer may decide that a particular counterparty consent no longer matters enough to hold up a completion, and if the condition sits there for the buyer's protection the buyer may drop it and proceed. The buyer cannot decide that the counterparty has consented. Consent is a fact about the world and no clause reaches it.

The two verbs stay separate. A condition is waived. An approval is obtained. The moment somebody says a company waived an approval, or that an authority waived a closing condition, a definition has been dropped somewhere in the sentence.

Financing Condition vs Closing Condition: why is this the awkward one?

Start with the set relationship, the part people get backwards. Every financing condition is a closing condition. The reverse is not true. A financing condition is one member of the set of tests that suspend the obligation to complete, and it is the member that behaves differently from all the others.

Define the general case first. A closing condition, in almost every instance, points at something outside both parties. On this purchase, the regulatory approval sits with an authority. The material adverse change test sits with the world and with whatever the business does in nine weeks. The two counterparty consents sit with two other companies. Neither the buyer nor the seller can simply decide any of those three. Sitting outside both sides is precisely why both can agree to be bound by them without either feeling exploited.

Now define the financing condition. A financing condition says that the buyer does not have to complete unless its money is in place. On this transaction, Harivansh Packaging Limited funds the purchase with Rs 140 crore of its own cash plus Rs 1,000 crore of new borrowing at its own contracted 9.0 per cent. The two together come to exactly the Rs 1,140 crore agreed at signing. A financing condition would suspend the obligation to complete until that Rs 1,000 crore is actually available to draw.

And here is why it sits so badly with a seller. Most closing conditions concern something outside both parties. A financing condition concerns something inside the buyer, so it asks the seller to carry the buyer's funding risk on the seller's timetable. The seller has spent nine weeks not selling to anybody else, not running a parallel process, telling two counterparties that a transaction is happening and holding a business in place for a hand over. If the reason completion fails is that the buyer could not arrange its own money, the seller has absorbed a risk it had no way to price and no way to watch.

Whether a financing condition appears in a particular agreement is a commercial choice, not a rule. A seller with several interested buyers will refuse it. A seller with one buyer and a pressing reason to sell may accept it. Neither outcome is standard practice. The analytical point is what is worth carrying away: in any condition list, each line either points outward at the world or inward at one of the two parties, and the second kind is where the negotiation actually was.

What happens to the business in the weeks between the two days?

The interim periodThe stretch of time between the signing day and the completion day, during which the transaction is agreed but not performed. Also described as the gap. is the strangest stretch of any transaction, and its strangeness is structural rather than accidental. The sellers keep running the business, keep signing cheques, keep deciding what to make and what to sell. The buyer watches, receives information and controls nothing.

The person in charge no longer has an interest in the long run, and the person with the long-run interest is not in charge. Read that twice, because every awkward thing about the interim period comes out of it. A seller who has agreed a price has no reason left to worry about how the business performs in three years. A buyer who is paying for those three years cannot touch anything that shapes them.

The everyday version is a tenant who has already given notice. For the last month, the flat is still theirs to use and the incentive to repair a leaking tap has quietly gone to zero. Nobody is behaving badly. The incentive simply moved. The moved incentive is why leave and licence agreements carry clauses about the condition in which a place must be handed back, and the same instinct produces conduct undertakings in a transaction.

A conduct undertakingA promise by the seller about how the business will be run between signing and completion, typically that it will carry on in the ordinary way and that unusual actions need the buyer's agreement first. is the answer to that incentive gap. In broad shape, the seller promises to keep running the business in the ordinary way and agrees that anything unusual needs the buyer's agreement first. The meaning of unusual, the limits on what the buyer may be told, and the boundary between watching and controlling all sit with the definitive agreement. The structural point stands on its own: the undertakings exist because control and interest have come apart, and they are an attempt to hold behaviour steady for a defined number of weeks.

There is a real limit on how far this can go, and it is worth naming. The buyer cannot be given so much say that it is effectively running a business it does not yet hold. The boundary itself, and what a listed acquirer may do with information gathered in those weeks, is set by the Securities and Exchange Board of India (SEBI) at sebi.gov.in and by company law at mca.gov.in.

What did the two days cost on this purchase, in rupees?

Work the numbers on this transaction and the whole argument lands. At signing, Harivansh Packaging Limited and the sellers of Sundarban Polymers Private Limited are bound at an equity value of Rs 1,140 crore. The equity value is not the headline figure. Quoting the wrong end of the bridge as the price paid is the single most common error made about transaction figures, so the bridge is worth running.

Enterprise value is Rs 1,320 crore, being 10.0 times Sundarban Polymers' earnings before interest, tax, depreciation and amortisation (EBITDA) of Rs 132 crore. From that, deduct that same company's net debt of Rs 180 crore. Rs 1,320 crore less Rs 180 crore is Rs 1,140 crore, and Rs 1,140 crore is what actually goes to the sellers. Nobody ever writes a cheque for Rs 1,320 crore.

Three conditions are open on the signing day and stay open for the whole nine weeks: the regulatory approval, the absence of a material adverse change, and consents from the two counterparties whose contracts change hands.

Nine weeks later, at completion, the arithmetic is redone against what the accounts actually showed rather than against what was assumed at signing. Two things get measured. Working capital came in at Rs 108 crore against a normalised working capital pegA benchmark level of working capital written into the agreement. The completion price moves up or down by the difference between the actual level and this benchmark. of Rs 96 crore, so the price adjusts up by Rs 12 crore. Net debt came in at Rs 195 crore against the Rs 180 crore assumed for Sundarban Polymers, so the price adjusts down by Rs 15 crore. Plus Rs 12 crore and less Rs 15 crore nets to minus Rs 3 crore, and the sellers receive Rs 1,137 crore rather than Rs 1,140 crore.

Now make the point the two days exist to teach. The table above is easy to read as fussy detail and miss entirely. The Rs 12 crore and the Rs 15 crore are movements that happened during the nine weeks, and if signing and completion had been one day there would have been nothing to adjust and nothing to argue about. The gap creates the need for the mechanism. Working capital did not drift because anybody misbehaved. Working capital drifted because nine weeks of trading happened, in a business whose day-to-day control sat with a seller who had already agreed a price.

A conditions period has no standard length. Nine weeks is what this transaction took, and the same three tests on another purchase could run to four weeks or to twenty. The definition of the Rs 96 crore peg, and the way the completion accounts get prepared and agreed, are settled in the definitive agreement. What matters for the two days is that the peg exists and produces a number.

One further reading that is easy to miss. The funding was arranged against Rs 1,140 crore, being Rs 140 crore of the buyer's own cash and Rs 1,000 crore of new borrowing. The amount that actually had to be paid was Rs 1,137 crore. The arithmetic of a conditions period does not always leave the buyer needing more money on the day, and a team that assumed the adjustment could only run one way would have sized something wrongly.

When are signing and completion the same day?

Sometimes the two days really are one. A transaction can sign and complete in the same sitting, and looking at that case is the fastest way to understand why every other transaction has a gap.

A simultaneous completionA transaction where the agreement is signed and performed on the same day, with no period in between. Sometimes described as signing and closing together. happens where there is nothing left to satisfy. No approval is needed. No third party has to consent to anything. The buyer already has its money and does not need to draw a facility. The business being sold has no contract that moves and no counterparty with a say. In that situation, holding a conditions period would achieve nothing except delay, so the parties sign and complete together.

A simultaneous transaction is not a simpler transaction. Every one of its conditions was satisfied before anybody signed. The work did not vanish. Either it was never required, or it was done in advance and at the buyer's own risk before there was any binding obligation to complete. A buyer who arranges its full funding before signing so that no financing condition is needed has not removed the funding risk. The buyer has moved the funding risk onto itself and paid for the privilege in flexibility.

The simultaneous case gives a clean test to carry into any transaction. If signing and completion are separate, the questions are what has to be true in between and who is responsible for making it true. If they are the same day, the questions are what was done in advance and who paid to do it. Both are the same underlying question about where the conditions went.

How does a lender, an analyst or a deal team read the gap?

Three readers, three different first questions, and none of them is the question a casual reader asks.

A lender funding the buyer reads the gap as the window in which its own money becomes committed. The lender has agreed to provide Rs 1,000 crore against a transaction that has not happened yet, and wants to know what would have to go wrong for the drawdown never to occur. So it reads the condition list before it reads the business case, and it reads it looking for anything that points inward at its borrower rather than outward at the world. The lender runs the outward-or-inward test on the condition list, and runs it first.

An analyst covering the listed buyer reads the gap as a dating question. Nothing about Harivansh Packaging Limited's own numbers changes at signing. Revenue stays at Rs 3,180 crore, EBITDA at Rs 477 crore, borrowings at Rs 740 crore. Everything changes at completion, when Rs 1,000 crore of new borrowing lands and the target's Rs 880 crore of revenue and Rs 132 crore of EBITDA start to consolidate. An analyst who moves those numbers on the announcement date has dated the transaction wrongly, and every ratio built on it will be wrong by a quarter or more.

The transaction team reads the gap as a work plan, and this is the reading that decides whether the transaction actually completes. Each condition gets a named owner. Each owner reports on a fixed rhythm. Somebody keeps a single list that says what is done, what is in progress and what has not started. The single list is unglamorous and it is the entire job in those weeks.

The household version is a wedding date that has been fixed. The date being fixed does not book the hall, order the food or arrange the travel. The fixed date creates the obligation that makes all of that worth doing, and then somebody has to actually do it, week by week, with a list. Everybody knows a wedding where the date was fixed early and the list was started late.