Conditions Precedent Explained: Signing vs Closing, MAC Clauses, Antitrust & the Long-Stop Date

Key takeaways

Signing and closing are two separate events, and the gap between them is where the risk lives. At signing the parties execute the sale agreement and become bound; at closing — completion, in UK usage — the money and the shares actually change hands. They are separated because a list of conditions precedent (CPs) must be satisfied first: antitrust clearance, foreign-investment approval, third-party consents, sometimes a shareholder vote
The condition neither party controls is regulatory clearance. Antitrust review (the CMA in the UK, the European Commission, HSR in the US) and foreign-investment screening (the UK's NSIA, the US's CFIUS) sit with a regulator on its own timetable. The negotiation is over who bears that risk — a hell-or-high-water covenant forces the buyer to divest whatever it takes, and a reverse break fee prices the buyer's failure to clear
Through the interim period the target is frozen by gap covenants — it must run the business in the ordinary course and is barred from paying dividends, taking on debt, or signing material contracts without consent. Under a locked-box deal the economic risk has already passed to the buyer, so these covenants are how the buyer protects an asset it does not yet own
The buyer's only clean exit is a material adverse change (MAC) clause — and it almost never works. A Delaware court did not once uphold a buyer's right to walk on a MAC until Akorn v Fresenius in 2018. General economic and industry-wide downturns are carved out, so the bar is a disaster specific to the target. The long-stop date — the outside date, usually 6–12 months out — is the real backstop: if the CPs have not cleared by then, either side can walk away

Signing Is a Promise, Closing Is the Payment

The single most common misread of an M&A deal is treating the announcement as the finish line. It is not. When a sale-and-purchase agreement is signed, the parties are legally bound to complete — but nothing has moved. The buyer has not paid, the seller still owns the shares, and the target still runs itself. Completion — closing, in US usage — happens later, sometimes the same day, more often months afterwards, and only then does consideration cross the table against the transfer of the shares.

The two events are split for one reason: some things have to be true before the deal can legally or practically close, and they are not true at signing. A competition regulator has to clear the combination. A key customer has to consent to a change of control. A listed acquirer has to put the deal to its shareholders. Each of those is a condition precedent — a box that must be ticked before either party is obliged to complete — and the interval in which they get ticked is the gap that defines the topic. When there are no such conditions, the parties simply sign and close in one motion; the moment there is even one, the gap opens and the risk with it.

Conditions Precedent: The List That Must Clear Before Money Moves

A condition precedent is a stated event that has to occur, or a fact that has to hold, before a party is required to complete. The SPA lists them, allocates responsibility for satisfying each one, and specifies what happens if one fails. They fall into a small number of recurring buckets, and a candidate who can name the buckets and say who controls each is already ahead of one who calls the whole thing "regulatory stuff".

Condition precedent	What it is	Who controls it
Antitrust / merger control	Clearance from competition authorities where the combination crosses notification thresholds	The regulator — not the parties
Foreign-investment approval	National-security screening (UK NSIA, US CFIUS) in sensitive sectors	A government body, on its own clock
Third-party consents	Change-of-control consents from key customers, landlords, lenders, licensors	Counterparties the deal does not bind
Shareholder approval	A target vote (public deals) or an acquirer vote where the deal is large enough to require one	Shareholders
No MAC / bring-down	No material adverse change has occurred, and the warranties remain true at closing	Events and the target's conduct

What is conspicuously not on a well-advised seller's list is a financing condition. A seller does not want the buyer's ability to close to depend on the buyer's debt turning up — that is the buyer's problem, priced through a reverse termination fee, not a condition the seller carries. In a UK public bid the point is absolute: the Takeover Code's certain funds requirement means a bidder must have committed financing in place before it announces, so a public offer is never conditional on the buyer raising the money. The one condition every gap turns on, though, is the one no lawyer in the room can deliver: regulatory clearance.

Antitrust and Foreign-Investment Clearance: The Condition a Regulator Controls

Every other condition can, in principle, be worked. Consents can be chased, a shareholder vote can be canvassed with irrevocables. Regulatory clearance cannot be worked in the same way, because it sits with a public authority applying its own test on its own timetable — and that is what makes it the condition deals actually die on. Above defined turnover or transaction-size thresholds, a merger must be notified and cleared before it can complete: the Competition and Markets Authority in the UK, the European Commission for deals with an EU dimension, and the Hart-Scott-Rodino pre-merger notification regime in the US (approximate size-of-transaction threshold in the low nine figures of dollars, indexed annually).

Layered on top is a newer screen: foreign-investment control. The UK's National Security and Investment Act, in force since 2022, makes clearance mandatory for acquisitions in seventeen sensitive sectors — defence, AI, energy, communications and the rest — regardless of deal size, with the power to unwind a completed deal that skipped it. The US equivalent, CFIUS, screens foreign acquisitions of US businesses on national-security grounds. Neither is a competition test; both can block or condition a deal, and both run to the government's clock, not the parties'.

Why regulatory risk is negotiated, not assumed away Because clearance sits with a third party, the SPA cannot make it certain — it can only allocate the risk of failure. Two levers do that. A hell-or-high-water covenant puts the risk entirely on the buyer: it commits to accept whatever remedy the regulator demands — divesting overlapping businesses, licensing IP, behavioural undertakings — so that "we could not get it cleared on acceptable terms" is not an exit. A reverse break fee triggered on antitrust failure prices the residual risk: if the deal dies because it will not clear, the buyer pays the target a fee, often larger than an ordinary break fee precisely because the target is being compensated for months lost to a process it never controlled. Where those two levers land in the drafting is the single best read on which side the parties think the antitrust risk really sits.

Clearance takes months, and while it runs the buyer has signed for a business it cannot yet touch. The interim period is how it protects that business without owning it.

The Interim Period: Covenants That Freeze the Business the Buyer Has Not Yet Paid For

Between signing and closing the target is still run by the seller, but the buyer has a signed claim on it — so the SPA constrains what the seller may do in the meantime. These gap covenants (or pre-completion undertakings) come in two flavours. A positive covenant requires the target to carry on business in the ordinary course, consistent with past practice, so the buyer receives at closing broadly the business it agreed to buy. Negative covenants bar a list of specified actions without the buyer's consent: no dividends or distributions, no new borrowing, no disposals of material assets, no hiring or firing of senior management, no material contracts signed or terminated, no changes to the capital structure.

The logic sharpens under a locked-box mechanism. There, the price is fixed off a historical balance sheet and the economic risk and reward of the business pass to the buyer from the locked-box date — well before it takes control. So value leaking out of the business in the gap is money out of the buyer's pocket, and the covenants, backed by a "no leakage" undertaking, are the buyer's only defence for an asset it is paying for but cannot yet run. Get the covenants too loose and the seller can strip value before completion; too tight and the seller cannot manage its own business through a process that may run half a year.

The MAC Clause: The Walk-Away Right That Almost Never Works

Suppose that during the gap the target's business genuinely falls apart — a plant burns down, a fraud surfaces, the single product is pulled by a regulator. Can the buyer refuse to close? The mechanism that would let it is the material adverse change clause: a condition that no MAC (also "material adverse effect", MAE) has occurred in the target since signing. On paper it is the buyer's escape hatch. In practice it is almost welded shut.

The reason is the carve-outs. A standard MAC definition excludes changes arising from general economic conditions, industry-wide developments, changes in law, and — since 2020 — pandemics and force majeure, usually unless the target is affected disproportionately relative to its peers. Strip those out and what remains is a very narrow category: a catastrophe specific to this target, durationally significant rather than a passing dip, and material against the business as a whole. Courts read the clause as the parties' allocation of systemic risk to the buyer and company-specific risk to the seller — so a market crash is the buyer's problem, and only a disaster unique to the target reaches the bar.

1 Number of times, before 2018, that a Delaware court had found a valid MAC entitling a buyer to walk away from a signed deal — zero. Akorn v Fresenius was the first, and it took a collapse in the target's earnings plus data-integrity fraud so severe the court called the business "durationally" impaired. The MAC is the answer interviewers expect you to reach for and then explain why it almost never delivers

Why "the buyer invoked the MAC" is usually the wrong answer Buyers assert MACs far more often than courts uphold them, and the reason is tactical: an asserted MAC is leverage to renegotiate the price, not usually a genuine intention to litigate a walk-away. The wave of Covid-era disputes in 2020 — buyers across retail, hospitality and travel arguing the pandemic was a MAC — is the case study. Almost none were won on the MAC itself; the pandemic carve-out and the disproportionate-effect test sat squarely against the buyer. What they produced instead were renegotiated prices and quiet settlements. So when an interviewer asks "what can stop a signed deal?", reaching straight for the MAC is the tell of someone who has read the term but not watched it fail. The stronger answer is that the MAC is a near-dead letter used mostly as price leverage, and that the conditions that actually kill deals are regulatory refusal and the clock running out.

The Long-Stop Date: The Clock That Ends the Gap

The gap cannot stay open forever, and the term that closes it is the long-stop date — the outside date, or drop-dead date, in US drafting. It is the deadline by which all conditions must be satisfied; miss it, and either party may terminate without penalty. It is set to give the slow conditions — antitrust and foreign-investment review above all — enough room to run, typically six to twelve months from signing, with automatic extensions where a regulatory process is still live and progressing.

1. Signing. The SPA is executed and the parties are bound. The condition list, the gap covenants, and the long-stop date are all now fixed. The clock starts.

2. The gap runs. Regulatory filings go in and grind through review; third-party consents are chased; a shareholder vote, if needed, is scheduled. The target runs in the ordinary course under the covenants.

3. The date approaches. If clearances are landing, the parties close. If a regulator is still deliberating, the SPA's extension mechanics may push the date out — but only so far, and only while the process is genuinely alive.

4. The date passes unsatisfied. If a condition — almost always the regulatory one — has not cleared by the long-stop date, either party can walk. Whether a break fee or reverse break fee is owed depends on why it failed and which side carried that risk in the drafting.

The long-stop date is why deals die quietly rather than dramatically. There is rarely a single blocking event; more often a regulator drags, a remedy the buyer will not accept is demanded, and the clock simply runs out. The MAC is the exit everyone names; the long-stop date is the exit deals actually use.

Interview framing Asked "what is the difference between signing and closing?" or "what can stop a deal after it is signed?", build the answer in layers. Start with the split — signing binds the parties, closing moves the money, and conditions precedent fill the gap. Name the buckets and flag which one the parties do not control: regulatory clearance, allocated through a hell-or-high-water covenant and a reverse break fee. Explain that the business is frozen by ordinary-course covenants in the interim, sharpened under a locked box because the buyer already carries the economics. Then handle the MAC correctly — it is the exit candidates reach for, but general downturns are carved out, Delaware upheld one only in Akorn, and Covid MAC claims mostly failed, so it functions as price leverage, not a walk-away. Close on the long-stop date as the real backstop. Moving from structure, to who bears the risk, to why the obvious exit does not work is what separates a candidate who has read an SPA from one who has heard the phrase "conditions precedent".

The Verdict: The Gap Is Where a Signed Deal Is Still a Live Risk

Signing is not closing, and the distance between them is not an administrative formality — it is where a signed deal remains genuinely at risk. The conditions precedent are the list that must clear; the one that neither side controls, regulatory clearance, is where deals actually break, which is why so much of the drafting is really an argument about who bears that risk. The interim covenants keep the business intact for a buyer who has committed to it but cannot yet run it, and the long-stop date puts a hard end on the whole arrangement.

The judgement an interviewer is testing is whether you can see past the obvious. The MAC clause is the term everyone knows and the exit almost no one gets — carved out for systemic risk, upheld in Delaware exactly once, deployed far more often as leverage than as a genuine walk. Naming the conditions is the textbook. Knowing which one kills deals, which exit does not work, and why the clock is the real backstop is the part that sounds like someone who has sat through a completion that nearly did not happen.

Anyone can say a deal "signs and then closes" — that is the headline. The judgement is the gap: conditions precedent fill it, and the one that matters is the one the parties do not control — regulatory clearance, allocated through a hell-or-high-water covenant and a reverse break fee. The business is frozen by ordinary-course covenants, sharper under a locked box because the buyer already owns the economics. And the exit everyone names is the exit that almost never works: a Delaware court upheld a buyer's MAC walk-away only once, in Akorn, and the Covid MAC claims mostly failed — so the real backstop is not the MAC, it is the long-stop date and the clock running out.

Careers: An Associate Runs the CP Checklist

On a live deal the gap between signing and closing is largely run by juniors. The associate keeps the conditions precedent checklist — the working document tracking every CP, who owns it, what evidence satisfies it, and how close each is to done — and it is the artefact senior bankers and lawyers look at first on a status call. Chasing a change-of-control consent from a stubborn landlord, confirming an antitrust filing has been accepted, assembling the closing deliverables against the list: this is the unglamorous machinery that turns a signed SPA into a completed deal.

The skill that compounds is reading the checklist for where the risk actually is. An associate who can tell a partner "everything is satisfied bar the CMA, and the long-stop is ninety days out" — or "the seller is leaning on the ordinary-course covenant to justify a payment we should challenge" — is doing the part of execution the deal turns on, the same instinct that separates a real quality-of-earnings review from a checklist ticked for its own sake. The mechanics of the gap are where a junior first learns that a deal is not done when it is announced.

Take Your Preparation Further

The signing-to-closing gap sits inside the M&A process, so read it alongside the pieces that build the rest of it. Start with the M&A process from mandate to close for where signing and completion fall on the timeline, and deal protection for the break fees and reverse termination fees that price who carries the risk in the gap. For the pricing mechanism that decides when economic risk passes, see locked box vs completion accounts; for the insurance that backs the warranties the buyer relies on at closing, warranty & indemnity insurance; and for the UK public-bid regime where the certain-funds rule bars a financing condition, the UK Takeover Code. Then rehearse weaving it into a story with How to Answer 'Walk Me Through a Deal'.

For the full M&A process on one page — stages, parties, and the documents at each step — download our free M&A Process Cheat Sheet, and for the deal-process and negotiation questions in full, work through the PE Interview Masterclass.

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Conditions Precedent Explained: What Has to Happen Between Signing and Closing — the Antitrust Clearance a Regulator Controls, the MAC Clause Almost No Buyer Can Invoke, and the Long-Stop Date That Ends the Gap