Closing conditions are the contractual list of things that have to be true for the buyer to be required to close. Specific conditions favor sellers because they're objectively measurable. "Satisfactory" conditions favor buyers because they let the buyer decide whether the condition was met.

Most LMM LOIs use loose closing condition language. "Subject to satisfactory completion of due diligence." "Subject to buyer's approval of the financial statements." "Subject to definitive documentation acceptable to buyer." Each of those phrases is a free walk option for the buyer.

This post walks the six core closing condition categories, the difference between specific and "satisfactory" framing, the third-party consent enumeration that separates signed-but-walked-away deals from closed deals, and the bring-down mechanic that ties conditions to the closing date.

What closing conditions do

Between signing definitives and closing the deal, both sides have obligations. The seller continues to operate the business. The buyer arranges financing, gets regulatory approvals, finishes diligence. If something goes wrong during that gap, closing conditions decide who's on the hook.

Buyer-favorable closing conditions create walk rights. If a buyer-favorable condition isn't met, the buyer doesn't have to close (and may collect a break fee from the seller in some deals).

Seller-favorable closing conditions are minimal: the seller's obligation is to deliver the business as represented and operate it ordinarily during the gap. The buyer's walk rights are limited to specific, narrow events.

The architecture decides the leverage during exclusivity. Loose conditions = buyer has unlimited optionality. Tight conditions = seller has a closed deal subject to specific events.

The 6 core conditions

Standard closing conditions for an LMM deal:

1. Accuracy of representations

The seller's reps were accurate at signing and are still accurate at closing. Two flavors:

Bring-down accurate: reps must be accurate at closing date.

Bring-down accurate in all material respects: reps must be materially accurate at closing date. This is more seller-friendly because immaterial inaccuracies don't trigger walk.

Most LMM deals land at "accurate in all material respects" with carve-outs for fundamental reps (which must be accurate without materiality qualifier).

2. Compliance with covenants

The seller has performed all covenants in the agreement. Examples: ordinary course operation, no material asset sales, no major employment changes, no major contracts.

Standard language: "Seller has performed in all material respects all covenants required to be performed prior to Closing."

The seller's protection: keep covenants narrow and specific. Don't accept covenants that prohibit ordinary course business decisions.

3. Third-party consents

Specific contracts require consent before assignment to a buyer. Standard examples:

• Major customer contracts (top 10 by revenue)
• Major supplier contracts (top 5)
• Real estate leases (if applicable)
• Lender consents (if debt is being assumed or refinanced)
• Software licenses (enterprise licenses with assignment restrictions)
• Government contracts (often non-assignable without consent)

The trap: a buyer-favorable closing condition reads "all third-party consents necessary to consummate the transaction." That's a catch-all that includes contracts neither party identified. The seller could be on the hook for getting consent from a contract nobody knew about.

The fix: enumerate specific contracts in a schedule. Make the list exhaustive. Anything not on the list isn't a closing condition.

4. No MAC

A material adverse change has not occurred between signing and closing. (See MAC clause drafting for the architecture of the MAC itself.)

5. Regulatory approvals

If the deal requires regulatory clearance (HSR for deals above the threshold, sector-specific approvals like CFIUS or healthcare licensure), those must be obtained before closing.

Sellers should require buyers to use "best efforts" or "reasonable best efforts" to obtain approvals. Buyers will push for "commercially reasonable efforts," which is weaker.

6. Financing condition (rare in LMM)

In larger deals, the buyer may include a financing condition: closing depends on debt financing being available. This is a major walk right and sellers should resist.

In LMM, financing conditions are unusual. PE buyers typically have committed funds at signing. Strategic buyers use balance sheet cash. If a buyer asks for a financing condition, request a break fee for the buyer's failure to obtain financing.

Specific vs "satisfactory" framing

The same condition can be drafted specifically or vaguely. Compare:

Vague (buyer-favorable): "Closing subject to buyer's satisfactory completion of due diligence."

Specific (seller-favorable): "Closing subject to: (a) accuracy of seller's representations as of Closing in all material respects, (b) compliance with covenants, (c) third-party consents from contracts listed in Schedule 5.1, (d) no MAC, and (e) regulatory approvals."

The vague version is a free walk. The specific version is an enumerable list of objective conditions.

The seller's job in the LOI is to convert "satisfactory" language into specific enumerated conditions. Anything that says "satisfactory to buyer" or "in buyer's reasonable discretion" is a leverage trap.

Third-party consents: enumerated vs catch-all

The single most common trap in LMM closing conditions is the third-party consent catch-all.

Catch-all (buyer-favorable): "All third-party consents necessary to consummate the transaction."

This phrase looks innocuous. It's a free walk. The buyer can identify any unconsented contract during exclusivity and use it to retrade or walk.

Enumerated (seller-favorable): "Third-party consents listed in Schedule 5.1, which the parties agree are the only consents required for Closing."

The schedule is the list. If a contract isn't on the list, its lack of consent isn't a closing condition. The buyer can't walk for missing consents that weren't pre-identified.

The seller's job:

1. Identify all contracts with assignment restrictions before signing.
2. Get consent from the most important ones pre-signing where possible.
3. Schedule the remaining ones explicitly.
4. Negotiate language that limits the closing condition to scheduled items.

The bring-down mechanic

Closing conditions need to be measured at the closing date, not the signing date. The mechanic that does this is the "bring-down certificate."

At closing, the seller delivers a certificate stating that:

• The reps are still accurate (per the bring-down standard)
• The covenants have been performed
• No MAC has occurred
• All required consents have been obtained

The certificate is a representation by the seller as of the closing date. If anything in the certificate is wrong, the buyer has indemnity rights post-close.

The bring-down standard matters. "Bring-down accurate" means every rep must be exactly true. "Bring-down accurate in all material respects" means immaterial inaccuracies don't break the bring-down. Sellers should push for "in all material respects" except for fundamental reps.

Sample closing conditions section

For a $30M LMM deal, a clean closing conditions architecture:

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That's the entire closing conditions section. Five lines of specific buyer conditions. No "satisfactory diligence." No "in buyer's reasonable discretion." No catch-all consents.

What's not in this list

Three things sellers sometimes accept that they shouldn't:

Buyer's IC approval

Some buyer-drafted LOIs include "subject to investment committee approval." This is a free walk. The IC could decide anything. Reject this in the LOI; it doesn't belong in definitives at all.

Quality of earnings completion

"Subject to satisfactory QofE completion." Another free walk. The QofE finds whatever the QofE finds. The buyer can label anything "unsatisfactory."

The fix: complete QofE before signing definitives. Or limit the condition to specific findings ("QofE shows EBITDA below $X").

Lender consent (if debt is staying in place)

If the buyer is assuming debt or the seller's debt isn't being repaid at closing, lender consent is required. This is a real condition. But it should be specific to a named lender and a defined process, not "all lender consents."

Tools and references

For the LOI framework that establishes closing conditions architecture, see the LOI Checklist.

For the diligence prep that closes out conditions before they become walk rights, see the Sell Side Diligence Prep Checklist.

Bottom line

Closing conditions are the contractual list of buyer walk rights. Specific conditions favor sellers. "Satisfactory" or "reasonable discretion" conditions favor buyers. Catch-all language anywhere is a free walk.

Six core categories: rep accuracy, covenant compliance, third-party consents, no MAC, regulatory approvals, financing (rare in LMM). Each should be enumerable, objectively measurable, and limited to identified items.

The most common trap: third-party consents as a catch-all. The fix: enumerate specific contracts in a schedule. Anything not scheduled isn't a condition.

Specific conditions, scheduled consents, "in all material respects" bring-down, no satisfactory diligence anywhere. That's the architecture.

Not legal advice. Closing conditions need counsel review and customization for the specific deal.

FAQ

Can the buyer walk for any reason? Only if the closing conditions are loose enough. With specific conditions, the buyer can walk only if a specific condition fails. With "satisfactory" conditions, effectively yes.

What's a third-party consent? A required approval from a counterparty to a contract before the contract can be assigned to a buyer. Common in customer contracts, leases, lender agreements, and government contracts.

Why are catch-all consent clauses dangerous? They include contracts neither party identified at signing. The buyer can find an unconsented contract during exclusivity and use it to walk.

What's a financing condition? A closing condition that depends on the buyer obtaining debt financing. Rare in LMM (PE has committed funds, strategics use cash). When present, sellers should require break fee for buyer financing failure.

What's a bring-down certificate? A certificate delivered at closing stating that the seller's reps are still accurate, covenants performed, no MAC. The bring-down standard ("accurate" vs "accurate in all material respects") decides how strict the test is.

Should the LOI list closing conditions? Yes, even if briefly. The LOI should establish that conditions will be specific and enumerable. Definitives operationalize. The LOI is where the framework gets pinned.

What if a closing condition fails? Depends on the contract. Some are walk rights (buyer doesn't close). Some are termination rights (either party can terminate). Some have cure periods. The remedy structure should match the severity of the condition.