Last-Minute Deal Dynamics: What to Expect Before Closing an Acquisition

For founders and CEOs navigating the final stretch of an M&A transaction, the days leading up to closing can feel deceptively quiet—until they’re not. Even after months of diligence, negotiation, and documentation, the final 5% of the deal often requires 50% of the effort. Why? Because this is when the most sensitive, high-stakes issues surface—issues that can materially impact your economics, your risk exposure, and your post-close obligations.

At iMerge, we’ve advised on hundreds of software and technology transactions, and we’ve seen firsthand how last-minute negotiations can either derail a deal or solidify a successful exit. This article outlines the most common late-stage issues sellers should anticipate, and how to prepare for them strategically.

1. Purchase Price Adjustments: The Working Capital Tug-of-War

One of the most common—and contentious—closing table negotiations involves net working capital (NWC) adjustments. While the headline purchase price may be fixed in the LOI, the final amount paid at closing is often adjusted based on a target level of working capital agreed upon during diligence.

Buyers want to ensure the business has enough short-term assets (like receivables and cash) to operate post-close without an immediate capital injection. Sellers, on the other hand, want to avoid leaving excess value on the table.

Key considerations include:

• Defining “working capital”: Exclude cash? Include deferred revenue? These definitions must be precise.
• Setting the target: Is it based on a 12-month average, trailing 3 months, or a seasonal adjustment?
• Post-close true-up: Most deals include a 60–90 day window for final reconciliation, which can lead to clawbacks or additional payments.

As we noted in Mergers & Acquisitions: Allocation of Purchase Price Disagreements, even small differences in accounting treatment can lead to six-figure swings in value. Sellers should work with their advisors to model multiple scenarios and negotiate clear definitions upfront.

2. Escrow Holdbacks: Protecting the Buyer, Exposing the Seller

Escrow provisions are another common flashpoint. Buyers typically require a portion of the purchase price—often 5% to 15%—to be held in escrow for 12 to 24 months to cover potential breaches of reps and warranties.

Late-stage negotiations often focus on:

• Escrow size and duration: Can it be reduced with a clean diligence report or rep & warranty insurance?
• Survival periods: How long do specific reps (e.g., tax, IP) survive post-close?
• Cap and basket thresholds: What’s the minimum claim size (basket) and maximum exposure (cap)?

In software deals, IP-related reps often carry longer survival periods and higher exposure caps. Sellers should be prepared to justify the strength of their IP portfolio and consider whether reps and warranties insurance can help reduce escrow requirements.

3. Intellectual Property Representations: The Devil in the (Codebase) Details

For technology companies, IP is the crown jewel—and the most scrutinized asset. Buyers will require strong representations that the company owns or has valid licenses to all IP used in the business, and that no third party has claims against it.

Late-stage IP issues that can delay or derail closing include:

• Open-source software usage: Improper use of GPL or other restrictive licenses can trigger indemnity concerns.
• Employee and contractor IP assignments: Missing or outdated agreements can raise ownership questions.
• Third-party claims or litigation: Even minor disputes can spook acquirers if not disclosed early.

As we outlined in Due Diligence Checklist for Software (SaaS) Companies, sellers should conduct an internal IP audit well before going to market. Waiting until the buyer’s counsel raises red flags can lead to rushed fixes—or worse, price reductions.

4. Deferred Revenue and Revenue Recognition

In SaaS and subscription-based businesses, deferred revenue is a common source of confusion. Buyers want to ensure they’re not paying for services they’ll have to deliver post-close without receiving the associated cash flow.

Key negotiation points include:

• How deferred revenue is treated in working capital
• Whether it reduces the purchase price or is excluded from NWC
• How revenue recognition policies align with GAAP or buyer standards

Misalignment here can lead to double-counting or undercounting revenue, which may trigger last-minute valuation disputes. Sellers should proactively model deferred revenue impacts and align with the buyer’s accounting team early in the process.

5. Employment Agreements and Key Person Risk

Buyers often require new employment or consulting agreements with founders and key team members. These agreements can become sticking points if compensation, non-competes, or equity rollover terms are not aligned with expectations.

In founder-led businesses, key person risk is a major concern. If the buyer perceives that the business cannot operate without the founder’s involvement, they may insist on:

• Longer earn-out periods tied to performance
• Retention bonuses or equity incentives
• Stricter non-compete and non-solicit clauses

As we discussed in What is the Role of a Buy-Side Advisor in Acquiring a Tech Company?, buyers are increasingly focused on post-close integration and continuity. Sellers should prepare their leadership team for these discussions and align incentives early.

6. Final Legal and Tax Structuring

Even after the deal is “done,” legal and tax structuring can introduce last-minute complexity. Common issues include:

• Asset vs. stock sale elections
• Section 338(h)(10) elections for tax treatment
• State and local tax exposure uncovered during final diligence

These decisions can materially impact the seller’s after-tax proceeds. As we noted in Tax Law Changes and the Impact on Personal Taxes from Selling a Software Company, early coordination between legal, tax, and M&A advisors is essential to avoid surprises at the finish line.

Conclusion: Expect the Unexpected—But Prepare Intelligently

Closing an acquisition is not just about signing documents—it’s about aligning risk, value, and expectations between two parties with different incentives. The final days of a deal are where those differences are most acutely felt.

Founders who anticipate these last-minute issues—working capital adjustments, escrow negotiations, IP reps, deferred revenue treatment, and employment terms—are better positioned to protect their economics and close with confidence.

Firms like iMerge specialize in helping software and technology founders navigate these complexities. From exit planning strategy to final deal structuring, our team brings the experience and foresight needed to avoid costly surprises.

Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.