What’s on the Closing Checklist When Selling a Tech Company — and What You Might Be Forgetting
After months of diligence, negotiation, and late-night data room uploads, you’re finally approaching the finish line: closing day. But before the wire hits and champagne is uncorked, there’s one more critical hurdle — the closing checklist.
For founders selling a software or tech company, the closing checklist is more than a formality. It’s a comprehensive, often legally binding list of deliverables, signatures, and confirmations that must be completed before the transaction can close. Miss a key item, and you risk delaying — or even derailing — the deal.
This article outlines what’s typically included in a closing checklist for a tech M&A transaction, and highlights a few often-overlooked steps that can make or break a smooth exit.
What Is a Closing Checklist?
A closing checklist is a detailed document, usually prepared by legal counsel, that itemizes all the documents, approvals, and actions required to consummate the sale. It’s used by both buyer and seller to track progress and ensure nothing falls through the cracks.
Think of it as the final project plan for your exit — a shared roadmap that coordinates legal, financial, and operational workstreams in the final days or weeks before closing.
Key Components of a Tech M&A Closing Checklist
While every deal is unique, most closing checklists for software and technology companies include the following categories:
1. Final Transaction Documents
Purchase Agreement: The definitive agreement (asset or stock sale) outlining terms, reps and warranties, indemnities, and covenants.
Disclosure Schedules: Attachments to the purchase agreement that qualify or expand on representations — often the most time-consuming to finalize.
Ancillary Agreements: These may include IP assignments, employment or consulting agreements, escrow agreements, and non-compete clauses.
2. Board and Shareholder Approvals
Board resolutions authorizing the sale
Shareholder consents (especially critical in stock sales or when drag-along rights are triggered)
Waivers of rights of first refusal or co-sale rights, if applicable
3. Regulatory and Compliance Filings
State-level filings for entity dissolution or name changes
U.S. antitrust filings (e.g., HSR Act) if thresholds are met
Foreign investment approvals for cross-border deals
4. Financial and Tax Deliverables
Final working capital calculation and true-up mechanism
Payoff letters for outstanding debt or credit lines
Tax clearance certificates or Form 8594 (for asset sales)
Assignment of patents, trademarks, and domain names
Transfer of source code repositories and documentation
Third-party software license consents
6. Employee and HR Matters
Offer letters or transition agreements for key employees
Termination of stock option plans or conversion to buyer equity
COBRA notices and benefits plan transitions
7. Customer and Vendor Notifications
Consent to assign material contracts (especially in SaaS businesses)
Notices to strategic partners or resellers
Updated billing and payment instructions
Commonly Overlooked Final Steps
Even experienced founders can miss critical items in the final stretch. Here are a few areas where deals often stumble — and how to stay ahead of them:
1. Working Capital Peg and Adjustments
Many founders underestimate the complexity of the working capital adjustment. Buyers want to ensure the business is delivered with a “normal” level of working capital — not drained of cash or overloaded with payables. Misalignment here can lead to post-closing disputes or escrow claims. A seasoned M&A advisor like iMerge can help model and negotiate a fair peg based on historical trends.
2. Customer Consent Bottlenecks
If your SaaS contracts include anti-assignment clauses, you may need customer consent to transfer them. This can be a sensitive process — especially if the buyer is a competitor or if customers are risk-averse. Start early, and consider how to frame the transition to preserve trust. For more on this, see How Do I Handle Customer Contracts During the Sale of My Software Business?
3. Final Cap Table Reconciliation
Before closing, you’ll need to finalize the cap table — including option exercises, warrant conversions, and any SAFE or convertible note conversions. Errors here can delay payouts or trigger legal exposure. Ensure your legal and finance teams are aligned on the final ownership structure and payout waterfall.
4. Closing Binder Assembly
After the deal closes, you’ll want a complete record of all signed documents, approvals, and correspondence. This is typically compiled into a “closing binder” — a digital or physical archive that can be invaluable for tax, legal, or audit purposes. For a deeper dive, see What Typically Goes Into a Closing Binder for a Startup Acquisition.
Final Thoughts: Don’t Let the Finish Line Trip You Up
Closing a tech M&A deal is a high-stakes, high-detail process. Even after the headline terms are agreed, the final 5% of execution can consume 50% of your time and energy. That’s why experienced founders often lean on M&A advisors not just for valuation and negotiation, but for operational execution in the final mile.
Firms like iMerge specialize in helping software and technology companies navigate these complexities — from working capital modeling to customer consent strategies to post-closing integration planning. A well-managed closing process doesn’t just protect value — it preserves relationships, reputations, and momentum for what comes next.
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.
How to Protect Your Company’s Secrets During M&A Talks with a Competitor
It’s a scenario that keeps many founders up at night: a larger competitor expresses interest in acquiring your company, but you can’t shake the feeling that their real motive is to peek under the hood. In the software and technology sectors—where proprietary code, customer data, and product roadmaps are often the crown jewels—this concern is not only valid, it’s increasingly common.
So how do you engage in serious M&A discussions without giving away the very assets that make your company valuable?
This article outlines the key precautions founders and CEOs should take before sharing sensitive information with a prospective buyer—especially when that buyer is a direct or adjacent competitor.
1. Understand the Risk: Why Competitors Initiate “Fake” M&A Talks
Not all acquisition interest is genuine. In some cases, a competitor may initiate discussions to:
Gain insight into your product roadmap or IP strategy
Understand your customer acquisition channels or pricing model
Benchmark your performance metrics against their own
Preemptively neutralize a rising threat in the market
While most acquirers act in good faith, the risk of misaligned intent is higher when the buyer is a strategic competitor. That’s why your information-sharing strategy must be carefully staged and legally protected.
2. Use a Two-Stage Diligence Process
One of the most effective ways to protect your company is to structure the diligence process in two stages:
Stage 1: Pre-LOI (Letter of Intent)
At this stage, limit disclosures to high-level, non-sensitive information. This might include:
Only after a signed LOI with exclusivity and deal terms should you consider sharing more sensitive materials. Even then, disclosures should be staged and monitored through a secure data room with access logs and watermarking.
3. Draft a Robust NDA—And Enforce It
Before any information is shared, insist on a well-crafted non-disclosure agreement (NDA). But not all NDAs are created equal. A strong NDA should include:
Explicit definitions of “Confidential Information”
Restrictions on use (e.g., for evaluation purposes only)
Non-solicitation clauses (to protect employees and customers)
Non-reverse engineering provisions (especially for software/IP)
Survival clauses that extend beyond the deal timeline
Firms like iMerge often work with legal counsel to ensure NDAs are tailored to the nuances of software and SaaS businesses. If a buyer pushes back on standard protections, that’s a red flag worth noting.
4. Limit Access to Sensitive IP and Code
Even in post-LOI diligence, avoid sharing raw source code or proprietary algorithms unless absolutely necessary—and only under strict controls. Consider these alternatives:
Provide code walkthroughs via screen share rather than file transfer
Use third-party code audits or escrow services to validate IP ownership
Redact or anonymize sensitive customer data in sample datasets
Before engaging deeply, do your own diligence on the buyer. Ask:
Have they acquired similar companies before? What happened post-acquisition?
Do they have a reputation for fair dealing—or for fishing expeditions?
Are they actively acquiring, or just exploring the market?
Advisors like iMerge often maintain proprietary databases of buyer behavior and can help assess whether a suitor is serious or speculative. This intelligence can be invaluable in deciding how far to proceed.
6. Use an M&A Advisor to Control the Process
One of the most effective ways to protect your company is to run a structured, advisor-led process. A seasoned M&A advisor can:
Pre-qualify buyers and filter out bad actors
Stage disclosures to align with deal progress
Negotiate NDAs and LOIs with protective language
Maintain competitive tension to discourage gamesmanship
Even with all precautions, there’s always some risk in opening the kimono. That’s why it’s important to:
Document what was shared and when
Watermark sensitive documents to track leaks
Retain legal counsel in case of NDA breach
But don’t let fear paralyze you. Many successful exits involve strategic buyers, including competitors. The key is to manage the process with discipline, not distrust.
Conclusion
Engaging with a competitor in M&A talks doesn’t have to mean exposing your company to undue risk. With the right legal protections, staged disclosures, and experienced advisors, you can explore strategic opportunities while safeguarding your most valuable assets.
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.
AI Training Data and M&A Risk: What Founders and Acquirers Need to Know
As artificial intelligence continues to reshape the software landscape, a new class of due diligence questions is emerging—particularly around how AI models are trained. For founders and CEOs of AI-driven companies, one question looms large during M&A discussions: Could training your AI model on copyrighted or web-scraped content create legal or valuation risks during or after an acquisition?
The short answer is yes. And the implications can be material—both in terms of deal structure and post-close liability. In this article, we’ll explore how training data provenance affects M&A due diligence, what buyers are looking for, and how sellers can proactively mitigate risk.
Why Training Data Matters in M&A
In traditional software M&A, diligence focuses on code ownership, customer contracts, and financial performance. But in AI transactions, the model itself—and the data used to train it—becomes a core asset. If that data includes copyrighted material or was scraped from the web without proper authorization, it can raise red flags for acquirers, especially those with public market exposure or institutional LPs.
Buyers are increasingly asking:
Was the training data obtained legally and ethically?
Does the company have documentation of data sources and licenses?
Could the model’s outputs infringe on third-party IP rights?
Are there any pending or foreseeable legal challenges related to data use?
These questions aren’t theoretical. In recent years, lawsuits have been filed against AI companies for allegedly using copyrighted images, text, and code in training datasets. While the legal landscape is still evolving, the risk is real—and buyers are taking notice.
How This Affects Deal Structuring and Valuation
From an M&A perspective, questionable training data can impact a deal in several ways:
1. Reps and Warranties
Buyers will likely require specific representations and warranties around data ownership and usage rights. If the seller can’t make those reps confidently, it may lead to carve-outs, indemnities, or even escrow holdbacks. For more on this, see our article on Mergers and Acquisitions: Reps and Warranties Negotiations.
2. Valuation Haircuts
Uncertainty around data provenance can lead to discounted valuations. Buyers may apply a risk-adjusted multiple or shift more of the purchase price into contingent earn-outs.
3. Post-Close Liability
If a lawsuit arises after the deal closes, the acquirer could be on the hook—unless protections were built into the agreement. This is especially concerning for strategic buyers with brand exposure or public shareholders.
Case Study: A Hypothetical AI SaaS Exit
Consider a fictional AI SaaS company, “LexIQ,” which built a natural language model trained on millions of web pages, including news articles, blogs, and academic papers. The company scraped this data without explicit permission, assuming it fell under “fair use.”
During diligence, a strategic buyer’s legal team flags the issue. They determine that some of the training data likely includes copyrighted material from major publishers. As a result:
The buyer reduces the offer by 20% to account for potential legal exposure.
They require a $2M indemnity cap and a 12-month escrow.
The deal shifts from a stock purchase to an asset purchase to isolate liability.
LexIQ’s founders, who were expecting a clean exit, now face a more complex and less favorable transaction. This scenario is increasingly common in AI M&A.
What Sellers Can Do to Prepare
Founders and CEOs of AI companies should take proactive steps to de-risk their training data before entering the market:
1. Audit Your Data Sources
Document where your training data came from, how it was collected, and under what terms. If you used third-party datasets, ensure you have the appropriate licenses.
2. Segregate or Retrain Risky Models
If parts of your model were trained on questionable data, consider retraining using licensed or synthetic datasets. This can be a significant investment, but it may preserve deal value.
3. Work with Legal Counsel
Engage IP counsel familiar with AI to assess your exposure and help craft defensible positions. This is especially important if you’re preparing for a sale or capital raise.
4. Prepare for Buyer Diligence
As we noted in Due Diligence Checklist for Software (SaaS) Companies, buyers will scrutinize your IP, data, and compliance practices. Having a clean, well-documented data pipeline can accelerate the process and build buyer confidence.
How iMerge Helps Navigate AI-Specific Risks
At iMerge, we’ve advised on numerous software and AI transactions where data provenance played a pivotal role. Our team helps founders anticipate diligence questions, structure deals to mitigate risk, and position their companies for maximum value. Whether you’re preparing for a strategic exit or evaluating unsolicited offers, we bring deep experience in software M&A and a nuanced understanding of emerging AI issues.
We also help clients assess whether an asset versus stock sale structure is more appropriate given potential liabilities—an increasingly relevant consideration in AI deals.
Conclusion
As AI becomes more central to software M&A, the legal and ethical sourcing of training data is no longer a back-office concern—it’s a boardroom issue. Founders who address it early can preserve deal value, reduce friction, and build trust with acquirers. Those who ignore it may find themselves negotiating from a position of weakness.
Use this insight in your next board discussion or strategic planning session. When you’re ready, iMerge is available for private, advisor-level conversations.
How Founders Should Navigate Stay-On and Non-Compete Negotiations in a Tech M&A Deal
When a strategic or financial buyer expresses interest in acquiring your software company, the conversation often extends beyond valuation and deal structure. One of the most consequential — and often underestimated — aspects of the negotiation is what happens to you, the founder, after the ink dries.
Buyers frequently request that founders stay on post-acquisition for a transition period, typically 12 to 36 months. They may also require a non-compete agreement to protect the acquired asset. While these requests are standard, they are not one-size-fits-all. How you negotiate these terms can significantly impact your personal upside, your team’s future, and the long-term success of the integration.
This article outlines how to approach these negotiations strategically, with a focus on protecting your interests while aligning with the buyer’s goals.
1. Understand the Buyer’s Motivation
Before negotiating, it’s critical to understand why the buyer wants you to stay. Is it to ensure a smooth transition of customer relationships? To retain key technical knowledge? Or to lead a new division post-acquisition?
For example, in a recent transaction iMerge advised, the acquirer — a mid-market private equity firm — required the founder to stay on for 24 months to oversee integration and product roadmap alignment. However, the founder negotiated a defined scope of responsibilities and a performance-based bonus structure, ensuring alignment without open-ended obligations.
Clarifying the buyer’s intent helps you frame your role and negotiate terms that are both fair and finite.
2. Define the Scope and Duration of Your Post-Acquisition Role
Too often, founders agree to stay on without a clearly defined role, only to find themselves marginalized or overextended. To avoid this, negotiate:
Title and reporting structure: Will you be a divisional CEO, a product lead, or an advisor? Who will you report to?
Time commitment: Full-time, part-time, or advisory? Can you work remotely?
KPIs and success metrics: Tie your compensation to measurable outcomes, not vague expectations.
Exit triggers: Define what happens if the buyer changes your role, sells the company again, or fails to meet agreed-upon conditions.
These terms should be codified in an employment agreement or consulting contract, separate from the purchase agreement.
3. Structure Compensation to Reflect Risk and Value
If you’re being asked to stay on, you should be compensated not just for your time, but for the value you’re helping preserve or create. Consider negotiating:
Base salary: Benchmark against market rates for similar roles in the acquiring company.
Performance bonuses: Tie to revenue retention, product milestones, or integration success.
Severance protections: If you’re terminated without cause, ensure you’re entitled to severance and accelerated vesting, if applicable.
Firms like iMerge often help founders model these scenarios to understand the true economic value of staying on versus walking away at close.
4. Negotiate Reasonable Non-Compete and Non-Solicit Terms
Non-compete clauses are standard in M&A, but they must be reasonable in scope, geography, and duration to be enforceable — and fair. Here’s how to approach them:
Duration: 12 to 24 months is typical. Anything longer should come with additional compensation.
Geographic scope: Limit to regions where the business operates or has customers.
Industry scope: Avoid overly broad language that could prevent you from working in adjacent or unrelated sectors.
Non-solicit clauses: Ensure you can hire former team members after a reasonable period (e.g., 12 months).
In some cases, founders have successfully negotiated a “carve-out” allowing them to invest in or advise non-competing startups. This is especially important for serial entrepreneurs.
5. Protect Your Team — Early and Explicitly
Founders often feel a deep sense of responsibility to their team. If the buyer is asking you to stay, use that leverage to advocate for your people:
Retention bonuses: Negotiate a pool for key employees, tied to post-close milestones.
Equity conversion or acceleration: Ensure existing equity holders are treated fairly in the transaction.
Employment guarantees: While rare, some buyers will agree to retain key staff for a defined period.
As we noted in Sell Website: Success After The Closing, post-close success often hinges on team continuity. Buyers who understand this are often open to structured retention plans.
6. Use the LOI Stage to Set the Tone
Many founders wait until the definitive agreement stage to raise these issues — a mistake. The Letter of Intent (LOI) is your best opportunity to outline high-level expectations around your role, compensation, and non-compete terms.
As we explain in Completing Due Diligence Before the LOI, the LOI stage is also when you have the most leverage. Once exclusivity is granted, your negotiating power diminishes.
7. Bring in Experienced Advisors Early
These negotiations are nuanced and emotionally charged. A seasoned M&A advisor can help you:
Benchmark compensation and non-compete terms
Model post-close scenarios and tax implications
Coordinate with legal counsel to ensure enforceability and fairness
Maintain deal momentum while protecting your interests
At iMerge, we’ve guided founders through hundreds of software and technology transactions. We understand how to balance founder protections with buyer expectations — and how to structure deals that work for both sides.
Conclusion
Staying on post-acquisition or signing a non-compete doesn’t have to mean giving up control or future opportunity. With the right strategy, you can negotiate terms that reward your contributions, protect your team, and set the stage for a successful transition — or a graceful exit.
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.
Open Source in AI SaaS: Licensing and IP Risks in M&A — And How to Prepare
In today’s AI-driven SaaS landscape, leveraging open-source libraries and pre-trained models is not just common — it’s foundational. From TensorFlow and PyTorch to Hugging Face transformers and scikit-learn, these tools accelerate development and reduce costs. But when it comes time to sell your company or raise capital, what once felt like a technical shortcut can become a legal and financial landmine.
At iMerge, we’ve advised on numerous software and AI transactions where open-source usage became a central diligence issue. If your product incorporates open-source components — especially if you’ve fine-tuned or modified them — it’s critical to understand the licensing implications and how they may affect your valuation, deal structure, or even deal viability.
Why Open Source Raises Red Flags in M&A
Buyers — particularly strategic acquirers and private equity firms — are increasingly cautious about open-source software (OSS) usage. Their concern isn’t philosophical; it’s legal and financial. Improper use of OSS can expose the acquirer to:
License violations that require code disclosure or restrict commercial use
IP contamination that undermines proprietary claims
Unclear ownership of derivative works or fine-tuned models
Litigation risk from rights holders or contributors
These risks can delay a deal, reduce the purchase price, or lead to post-closing indemnification claims. In some cases, they’ve caused buyers to walk away entirely.
Key Licensing Issues to Watch
Not all open-source licenses are created equal. Some are permissive and business-friendly; others are “copyleft” licenses that impose strict obligations. Here are the most common categories:
These licenses allow you to use, modify, and distribute the code — even in proprietary products — with minimal restrictions. Apache 2.0, for example, includes an explicit patent grant, which is attractive to acquirers. These licenses are generally low-risk in M&A.
2. Copyleft Licenses (e.g., GPL, AGPL, LGPL)
These licenses require that derivative works also be open-sourced under the same license. The GNU General Public License (GPL) is particularly problematic in commercial settings. If your SaaS product includes or links to GPL-licensed code, you may be obligated to release your source code — a non-starter for most acquirers.
The Affero GPL (AGPL) goes even further, applying to software accessed over a network — a direct hit to SaaS models. If you’ve fine-tuned an AGPL-licensed model and deployed it via API, you may be in violation unless you’ve open-sourced your modifications.
AI models often come with custom licenses that restrict commercial use, redistribution, or fine-tuning. For example, Meta’s LLaMA models are released under a non-commercial license, and OpenAI’s models are proprietary. Even open models like BLOOM or Falcon may include clauses that limit usage in certain industries or require attribution.
Buyers will scrutinize whether your use of these models complies with their terms — especially if you’ve built a commercial product on top of them.
How to Prepare for Diligence: A Strategic Checklist
To avoid surprises during due diligence, founders should proactively audit and document their open-source usage. Here’s how:
1. Conduct a Full OSS Inventory
Use automated tools (e.g., FOSSA, Black Duck, Snyk) to scan your codebase and identify all open-source components, including transitive dependencies. Don’t forget Docker images, scripts, and infrastructure code.
2. Map Licenses to Usage
For each component, document:
The license type (MIT, GPL, etc.)
How it’s used (linked, modified, embedded, etc.)
Whether it’s included in distributed code or only used internally
This mapping helps assess exposure and informs your legal strategy.
3. Review Fine-Tuned Models
If you’ve fine-tuned open-source models (e.g., BERT, Stable Diffusion), determine:
Whether the base model allows commercial fine-tuning
If your modifications constitute a derivative work
Whether you’ve redistributed the model or exposed it via API
Some licenses, like OpenRAIL-M, require that fine-tuned models carry forward the same restrictions. Violating these terms can jeopardize your IP claims.
4. Clean Up IP Ownership
Ensure all contributors — employees, contractors, or third parties — have signed IP assignment agreements. This is especially important if they’ve modified open-source code or trained models. Without clear ownership, you can’t transfer rights in a sale.
5. Create an Open Source Policy
Buyers want to see that you’ve institutionalized OSS governance. A written policy should cover:
In M&A, open-source issues can influence both the structure and economics of a deal:
Stock vs. Asset Sale: Buyers may prefer an asset sale to avoid inheriting OSS-related liabilities. (See: Asset versus Stock Sale)
Reps and Warranties: Expect detailed reps around OSS usage, license compliance, and IP ownership. Breaches can trigger indemnification or escrow claims.
Valuation Haircuts: If your core IP is built on restrictive OSS, buyers may discount your valuation or require code rewrites post-close.
In one recent transaction we advised, a SaaS AI company had fine-tuned a model under a non-commercial license. The buyer required a full model retraining on a commercially licensed base — delaying the deal by 60 days and reducing the purchase price by 15%.
Positioning for a Clean Exit
Open-source software is not inherently a problem — but unmanaged OSS is. The key is transparency, documentation, and proactive remediation. Founders who address these issues early can avoid costly surprises and preserve leverage in negotiations.
At iMerge, we routinely help SaaS and AI companies prepare for diligence by conducting pre-sale audits, cleaning up IP chains, and advising on license compliance. This work not only protects value — it often increases it by reducing perceived risk.
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.
