How Conditions Precedent Work in an M&A Completion

Why signing and completion are often separate events

In many company sales, the moment the parties sign the sale and purchase agreement (SPA) is not the moment the deal actually happens. If certain matters still need to be resolved, such as regulatory approval or third-party consent, the parties sign up to a binding contract but agree that completion, the point at which shares or assets actually transfer and money moves, will happen later once specified conditions are satisfied. The gap between signing and completion can run from a few days to many months.

Conditions precedent, often shortened to CPs, are the contractual conditions that must be met before either side is obliged to complete. Until they are satisfied or waived, the buyer does not have to pay and the seller does not have to hand over the business. This structure protects both sides: neither wants to be locked into finishing a deal if something outside their control, such as a regulator blocking it, means the transaction cannot lawfully or sensibly proceed.

What typically counts as a condition precedent

The conditions written into an SPA vary by deal but common examples include:

• Merger control or antitrust clearance from a competition regulator, required where the combined business would be large enough to raise competition concerns
• Sector-specific regulatory approval, for example where the target holds an FCA licence, operates in a regulated utility, or falls within scope of national security screening
• Third-party consents, such as a landlord agreeing to a change of tenant or a key customer contract requiring approval before it can be assigned
• Shareholder or board approval, particularly where the seller or buyer is itself a company that needs internal sign-off above a certain size of transaction
• No material adverse change, a clause allowing a party to walk away if the target’s business deteriorates significantly between signing and completion
• Completion of a specific pre-condition step, such as a reorganisation to carve out assets that are not part of the sale

Each condition is drafted as precisely as possible, because vague wording invites dispute later about whether it has actually been met.

Who has to do what to satisfy them

The SPA will usually place obligations on one or both parties to use defined efforts to satisfy the conditions, commonly phrased as “reasonable endeavours” or the stricter “best endeavours”. For a merger control condition, that typically means the buyer must file the notification promptly, respond to regulator queries, and not withdraw or delay the process without good reason. Sellers are often required to cooperate, for example by providing information the regulator needs about the target.

These endeavours obligations matter because a condition precedent can otherwise become a way to escape a deal that has simply become less attractive. Courts and drafters are alert to this risk, which is why well-drafted SPAs specify timelines, information sharing duties and sometimes a longstop date, a final date by which conditions must be met or either party can walk away.

Waiver, satisfaction and the longstop date

Some conditions are inserted purely for the buyer’s benefit, for example a condition that no material adverse change has occurred. Where that is the case, the SPA will usually allow the buyer to waive that condition unilaterally and proceed to completion anyway, even if the condition has not technically been met. Conditions inserted for regulatory reasons generally cannot be waived, because compliance with the law is not something the parties can contract around.

The longstop date acts as a backstop. If conditions remain unsatisfied by that date, either party typically has the right to terminate the agreement without penalty, unless the failure was caused by their own breach. Negotiating where that date sits, and whether it can be extended, is often one of the more contested points in drafting, particularly in deals with lengthy regulatory processes.

What happens once conditions are met

Once all conditions precedent are satisfied or validly waived, the parties proceed to completion. This is when the mechanics of the deal actually happen: shares are transferred, purchase price is paid, resigning directors step down, new directors are appointed and any completion deliverables, such as signed board minutes or statutory registers, are exchanged. Completion is usually governed by a completion mechanics clause or schedule setting out exactly what each party must deliver and in what order.

If a condition fails permanently, for example a regulator formally blocks the deal, the SPA will set out the consequences, which typically include termination of the agreement and, depending on how the deal was structured, provisions about break fees or return of any deposit.

Why this matters beyond the deal room

Conditions precedent are not just boilerplate. They determine how much certainty a seller has that a deal will actually complete once signed, and how much flexibility a buyer retains if circumstances change. Anyone reading about a corporate transaction that has been announced but not yet completed is, in effect, looking at a deal still working its way through its conditions precedent.

For current guidance on merger control thresholds and notification processes relevant to UK conditions precedent, the Competition and Markets Authority and the Law Society both publish practical materials on the mechanics involved.