The interim period between signing and closing is the stretch of time that starts when both sides execute the purchase agreement and ends when the deal actually closes, typically running two to six months and sometimes much longer for complex transactions. During that window, the signed contract binds both buyer and seller to a detailed set of rules governing how the business is run, what information can change hands, which regulators have to clear the deal, and what has to be true before closing can happen. Getting this phase wrong can kill the deal, trigger antitrust penalties, or leave one side holding a business worth far less than the agreed price.
The Three Dates That Frame the Period
Signing is the day the parties execute the definitive purchase agreement. From that moment, the seller no longer has free rein over the business even though ownership has not changed hands. The contract creates enforceable obligations on both sides until closing.
Closing is the day every condition in the agreement has been satisfied or waived and the purchase price is paid. It rarely happens in a single dramatic moment. Financial teams wire funds, lawyers exchange signature pages, and regulatory clearances get confirmed, often across time zones and over several hours.
The drop-dead date sets the outer boundary. If the deal has not closed by this negotiated deadline, either party can walk. Drop-dead dates typically fall six to twelve months after signing, with longer windows for transactions requiring extensive regulatory review. Walking away at the drop-dead date is not necessarily free; break-up fees or reverse break-up fees often apply.
What the Seller Can and Cannot Do
The single most important restriction on the seller during this window is the ordinary course covenant. It requires the seller to keep running the business the same way it ran before the deal was signed. The logic is simple: the buyer valued a specific business with specific operations, and the seller should not change what the buyer is paying for.
“Consistent with past practice” means how this particular company operated before the deal, not how others in the industry operate or how the business might respond to unusual market conditions. A seller who deviates from historical norms risks giving the buyer grounds to refuse to close or to pursue a breach of contract claim.
Most purchase agreements translate that broad standard into a detailed list of prohibited actions. Common restrictions include:
- Taking on new loans or credit facilities beyond a specified dollar threshold.
- Selling significant equipment, real property, or intellectual property outside normal inventory turnover.
- Granting unscheduled raises, bonuses, severance packages, or new equity awards.
- Settling lawsuits or waiving legal claims without the buyer’s written consent.
- Switching accounting methods or filing amended tax returns that could shift future obligations.
- Issuing new shares, granting stock options, or altering rights attached to existing securities.
- Entering leases or vendor agreements that lock the business into unanticipated commitments.
Capital expenditure limits appear in over 90 percent of public-company acquisitions, capping how much the target can spend on new equipment, facilities, or technology during the interim period. Some set a flat dollar ceiling, others reference the existing budget, and many combine both. Emergency exceptions for health, safety, or property damage are common.
Each prohibited action typically comes with a carve-out: the seller can do it if the buyer gives prior written consent. Whether that consent can be “unreasonably withheld” or is entirely at the buyer’s discretion is one of the most heavily negotiated points in the agreement.
The No-Shop and the Fiduciary Out
A no-shop clause prevents the seller from soliciting competing bids, engaging in discussions with other potential buyers, or providing confidential information to third parties exploring an acquisition. The seller also has to cut off any existing negotiations with alternative bidders, and most agreements require prompt disclosure if an unsolicited offer arrives.
In public-company deals, the no-shop creates tension with the board’s fiduciary duty to shareholders. A fiduciary out carves an exception into the no-shop, allowing the board to consider and ultimately accept a superior proposal, or to change its recommendation, if failing to do so would violate its duties. This exception has to be explicitly written into the contract. Delaware courts have held that there is no inherent fiduciary out in a negotiated agreement. The most common version lets the board accept a better third-party offer and terminate the signed deal, usually subject to paying a break-up fee.
What the Buyer Can and Cannot Do
Most interim restrictions target the seller, but the buyer faces its own legal landmines. Gun-jumping occurs when the buyer begins exercising control over the target’s business before the deal has closed and all required waiting periods have expired. Federal antitrust enforcers treat this seriously. The term covers violations of the Hart-Scott-Rodino Act’s waiting period rules, the Sherman Act’s prohibition on anticompetitive agreements between competitors, and the FTC Act’s ban on unfair methods of competition.
The activities that cross the line are more concrete than many buyers expect:
- Using the target’s plants, closing the target’s facilities, or reassigning the target’s employees before the deal is final.
- Jointly setting prices, determining contract terms, or reorganizing the target while the parties are still separate competitors.
- Entering management arrangements that effectively transfer operating control to the buyer under the guise of transition planning.
- Negotiating contracts or settling lawsuits on behalf of the target before closing.
- Drafting interim conduct provisions so broadly that the target cannot make routine business decisions without buyer approval.
In January 2025, three oil companies agreed to pay $5.6 million to settle the largest gun-jumping penalty in U.S. history after the FTC found they had unlawfully coordinated operations before their transaction cleared regulatory review.1Federal Trade Commission. Oil Companies to Pay Record FTC Gun-Jumping Fine for Antitrust Law Violation The consequences are not theoretical.
The standard safeguard is a clean team: a small group of vetted individuals, typically outside counsel and consultants, who can review competitively sensitive data in a controlled environment. Clean team members should not include anyone responsible for pricing, competitive strategy, or day-to-day operations. Documents shared during due diligence should redact customer identities, aggregate competitive data, and flow only through secure data rooms with strict download restrictions.2Federal Trade Commission. Avoiding Antitrust Pitfalls During Pre-Merger Negotiations and Due Diligence If the deal does not close, all confidential materials, including internal analyses built from the shared data, have to be destroyed.
Information Access During the Interim Period
The buyer does not sign the agreement and then sit in the dark until closing day. The purchase agreement typically grants reasonable access to the target’s books, records, and facilities during normal business hours. “Reasonable” is the operative word. The buyer cannot disrupt operations, redirect employees, or treat the business as if it already owns it.
The purpose of this access is different from pre-signing due diligence. The buyer is no longer deciding whether to do the deal; the focus has shifted to integration planning. Teams map IT systems, identify redundant functions, prepare organizational charts for the combined entity, and review updated customer lists and receivables to plan first-day operations. Financial staff produce updated balance sheets and confirm that the company’s financial condition has not deteriorated in ways that might trigger the material adverse effect clause or affect the working capital adjustment.
The buyer’s team has to walk a careful line. Gathering information and planning for post-closing integration is expected and appropriate. Directing employees, making operational decisions, or acting on competitively sensitive data crosses into gun-jumping territory. Experienced deal teams build detailed integration plans during this period but hold off on executing any of them until the moment ownership actually transfers.
Regulatory Approvals and the HSR Clock
Most transactions above a certain size cannot close until federal antitrust regulators have reviewed the deal and either cleared it or let the waiting period expire. Under the Hart-Scott-Rodino Act, both parties must file a notification when the transaction exceeds the size-of-transaction threshold, which is $133.9 million for 2026.3Federal Trade Commission. New HSR Thresholds and Filing Fees for 2026 Filing fees scale with deal size, starting at $35,000 for the smallest reportable deals and reaching $2,460,000 for transactions of $5.869 billion or more.
Once both filings are received, a 30-day waiting period begins. For cash tender offers, the initial window is only 15 days.4Office of the Law Revision Counsel. United States Code Title 15 Section 18a – Premerger Notification and Waiting Period If the reviewing agency (the FTC or the DOJ Antitrust Division) needs more information, it issues a “second request,” the antitrust equivalent of a deep-dive investigation. A second request resets the clock. The parties cannot close until they have substantially complied with the request and then observed an additional 30-day waiting period.5Federal Trade Commission. Premerger Notification and the Merger Review Process Responding to a second request can take six months or more and cost tens of millions in legal fees and document production.
Depending on the industry, the parties may also need approval from sector-specific regulators: banking authorities for financial institutions, the FCC for telecommunications, state insurance commissioners, or the Committee on Foreign Investment in the United States if a foreign buyer is involved. Each additional approval adds time to the interim period and creates another condition that has to be satisfied before closing.
How Hard Each Side Has to Try: Efforts Covenants
The agreement does not just list regulatory approvals and hope for the best. It includes an efforts covenant specifying how hard each party has to work to secure those approvals and satisfy all other closing conditions. The three most common standards, from most to least demanding, are “best efforts,” “reasonable best efforts,” and “commercially reasonable efforts.” A best efforts obligation may require the party to take actions that are costly or disadvantageous, while commercially reasonable efforts allow more room to weigh the burden against the benefit. Buyers of companies in concentrated industries sometimes face a “hell or high water” covenant, which requires them to accept whatever remedies a regulator demands, including divesting parts of the combined business, to get the deal cleared.
What Has to Be True on Closing Day
Closing does not happen automatically when the calendar runs out. Each side has to satisfy a set of conditions precedent before the other is obligated to go through with the deal. The most important is the bring-down condition: the representations and warranties made at signing have to still be true on closing day.
A bring-down certificate is the formal mechanism for confirming this. An officer of the target signs a certificate stating that the representations remain accurate as of closing, or, if the agreement uses a materiality qualifier, that any inaccuracies are not material enough to affect the buyer’s decision. A strict bring-down standard (every representation must be exactly true) gives the buyer more room to walk away, while a materiality-qualified standard lets minor, inconsequential changes pass without triggering a default.
Beyond the bring-down, closing typically requires a stack of ancillary documents: legal opinions from counsel, secretary’s certificates confirming board authorization, evidence that all required regulatory approvals have been obtained, and third-party consents from landlords, lenders, and major vendors whose contracts contain change-of-control or anti-assignment clauses. Missing even a single landlord consent on a key commercial lease can create a default once the deal closes, so tracking these consents is a constant operational task throughout the period.
For transactions involving U.S. real property or foreign sellers, the buyer also needs a FIRPTA affidavit, a signed certification that the seller is not a foreign person. Without it, the buyer must withhold 15 percent of the purchase price and remit it to the IRS.6Internal Revenue Service. FIRPTA Withholding The certification must include the seller’s name, address, and taxpayer identification number and be signed under penalties of perjury. A valid Form W-9 satisfies the requirement. Buyers must retain the affidavit for five years after the year of transfer.7Internal Revenue Service. Instructions for Form 8288 (Rev. January 2026)
Why the Final Price Differs From the Signing Price
The number written into the agreement at signing is rarely the number that changes hands at closing. Most deals include a working capital adjustment designed to account for the reality that the target’s financial position shifts between signing and closing. The parties agree on a “target” level of net working capital, typically based on the company’s historical average, and the actual working capital at closing gets compared against that benchmark.
If actual working capital comes in above the target, the buyer pays more. If it comes in below, the seller receives less. The adjustment can also cover cash balances, outstanding debt, and transaction expenses, depending on how the agreement is structured. The true-up plays out in phases after closing, usually with a 90-to-120-day window for the buyer to prepare a closing statement and a 30-to-60-day window for the seller to review and dispute specific line items. Unresolved items go to a neutral accountant whose determination is binding.
Workforce Planning and the WARN Act
Workforce planning during the interim period creates a specific compliance trap. If the buyer plans to eliminate positions or close facilities after closing, the federal Worker Adjustment and Retraining Notification Act requires 60 days’ advance written notice to affected employees, state rapid-response agencies, and local government officials before a plant closing or mass layoff takes effect.8Office of the Law Revision Counsel. United States Code Title 29 Section 2102 – Notice Required Before Plant Closings and Mass Layoffs
Figuring out who sends the notice and when takes care. The seller is responsible for WARN compliance for any covered event up to and including the closing date. The buyer takes responsibility for everything after closing. If the buyer has definite plans to conduct layoffs within 60 days of the purchase, the seller may deliver the notice on the buyer’s behalf, but the legal liability stays with the buyer regardless of who sends it.9U.S. Department of Labor. The Worker Adjustment and Retraining Notification (WARN) Act – A Guide for Employers The technical termination that occurs when employees stop working for the seller and start working for the buyer does not by itself trigger WARN; employees carry over automatically for WARN purposes.
Coordination between buyer and seller has to happen during the interim period, but it requires careful handling because premature workforce announcements can cause key talent to flee before closing, exactly the kind of value destruction the ordinary course covenant exists to prevent.
When the Deal Falls Apart
Not every signed deal makes it to closing. The purchase agreement spells out when either party can terminate and what it costs.
The material adverse effect clause, universally called the MAE or MAC, is the buyer’s primary escape hatch. If something happens between signing and closing that fundamentally damages the target’s business, the buyer can refuse to close by arguing an MAE has occurred. The legal bar is deliberately high. Under the standard applied by Delaware courts, the event must “substantially threaten the overall earnings potential of the target in a durationally-significant manner.” A bad quarter does not qualify. The decline has to be severe enough to alter the long-term value of the business, not just create short-term pain.
Every MAE definition carves out events that do not count: changes in general economic conditions, industrywide downturns, shifts in financial markets, changes in law or accounting rules, and natural disasters or geopolitical events. The carve-outs exist because the buyer is supposed to bear economy-wide risk while the seller bears company-specific risk. Most definitions include a “disproportionality” exception that adds those risks back in if they hit the target significantly harder than comparable companies. Successful MAE claims are extremely rare; buyers have prevailed only a handful of times since these clauses became standard. The threat of an MAE claim often serves a different purpose: giving the buyer leverage to renegotiate price or terms when conditions deteriorate.
Other common termination triggers include:
- Drop-dead date expiration, usually because regulatory approval stalled or a closing condition could not be satisfied.
- Material breach of a covenant or representation that cannot be cured within the time remaining before the drop-dead date.
- Exercise of the fiduciary out to accept a superior proposal.
- A government agency blocking the transaction or imposing conditions neither side will accept.
Break-up fees, sometimes called termination fees, compensate the buyer for its time and expense if the seller terminates to pursue a superior proposal or otherwise breaches the agreement. They typically range from about 2 to 4 percent of the deal’s equity value, with larger transactions tending toward the lower end. A reverse break-up fee works the other direction, compensating the seller when the buyer fails to close, usually because financing fell through or regulatory approval was not obtained. Reverse break-up fees vary more widely and can run higher in leveraged deals where financing risk is significant. Courts scrutinize fees that appear preclusive, particularly in public-company transactions where shareholder interests are at stake.