“Conditions Precedent” are those tasks that must be accomplished prior to completing a sale of your company. While there may be fewer Conditions Precedent depending on the structure of the sale (private vs. public, stock sale vs. asset sale, contemporaneous sign and close vs. sign and then close), all mergers and acquisitions have Conditions Precedent, regardless of structure.
Over the past 22 years, deals have faced significant delays due to problems with Conditions Precedent. The following is a brief list of some of these issues:
Customer & Supplier Consents1. Key Customers 2. Key Suppliers (e.g. facility lessors, technical license agreements) 3. Federal Agencies (e.g. DOD, DOS, DOT) 4. Municipal Agencies (e.g. discharge permits)
Management & Governance1. Employment Agreements (e.g. CEO, CSO) 2. Approvals of minority owners
Other1. Resolution of outstanding disputes/litigation 2. Environmental audit (Phase I or II, depending on circumstances)
While the above is not exhaustive, many of the items on this list can take substantial time to resolve. This is why we always advise our clients to review with their M&A legal counsel and us all of the likely Conditions Precedent that are unique to their circumstances, long before they start to talk with potential buyers. While it may be difficult to predict all of the Conditions Precedent that a buyer may require, we have had great success helping our clients and their M&A legal counsel prepare well in advance for most of the Conditions Precedent that could cause a delay in their closing.
As we say about almost all issues relating to selling middle market aerospace and defense companies: preparation is the key to success. Over the past 22 years, we have found this also applies to Conditions Precedent.
Have a great day everyone.