What happens after closing: the first 90 days of an M&A transaction

Closing is not the end of the M&A process. In the first 90 days the agreed price is confirmed or eroded: the working capital adjustment adjusts cash received; representations and warranties can be triggered if the buyer discovers something not disclosed; the contingent tranche starts to run; and operational transition determines whether the earn-out is collected or lost.

This note explains what happens on each front — the working capital adjustment, representations and warranties, earn-out and operational transition — and what the seller can do to protect their consideration.

How does the working capital adjustment work after closing?

The working capital adjustment is the first financial event after closing. The definitive agreement defined a target level of working capital — the amount the buyer expected to find in the business at closing. Actual working capital at closing is measured within 30–60 days post-closing and compared to the target.

A seller who collected receivables aggressively or delayed payments to suppliers in the weeks before closing will face a working capital shortfall at the adjustment date.

In practice, working capital adjustments in Mexican SME transactions range from zero (if the business was stable and the target was set correctly) to MXN $1M–$3M for businesses where the seller managed cash aggressively pre-closing.

Fictional example:

The seller extracted MXN $1.2M from the business pre-closing and returned it all in the adjustment.

See working capital.

What happens in the operational transition in the first 90 days?

Operational transition is the most critical 90-day variable for earn-out performance. The contingent tranche is measured in month 12 or 18 post-closing — but decisions made in the first 90 days determine whether those metrics are achievable.

Three transition risks that arise in the first 90 days:

1. Key clients

   Key clients notice the change of ownership. Some will test the new owner with smaller orders or slower payments. A founder who remains visible in client relationships during the transition period — as agreed in the transition plan — reduces this risk. A founder who disappears on day 31 creates it.

2. Key employees

   Key employees evaluate their future under the new owner. The first 90 days are when retention decisions are made. A buyer who moves too fast on structural changes or compensation adjustments risks losing the people the earn-out depends on. The seller's interest is to ensure the buyer manages this carefully — because employee departures affect earn-out metrics.

3. Suppliers and contracts

   Suppliers and counterparties with change-of-control clauses in their contracts may need to be notified or may require consent. Contracts that were not properly addressed in diligence can surface as issues in the first 90 days.

See earn-out and TSA.

How do representations and warranties activate in the first 90 days?

The first 90 days are when the buyer most often discovers issues that were not disclosed in the data room. The due diligence process is over; the buyer is now operating the business and seeing its reality directly.

Common discoveries in the first 90 days that trigger representation and warranty claims:

• Unrevealed labor contingencies (informal terminations, pending claims)
• Tax obligations not reflected in the financial statements
• Contracts with clients containing change-of-control provisions that were overlooked in diligence
• Receivables represented as collectible but actually in dispute

A seller who prepared a complete data room and disclosed all known risks in the representation and warranty schedules has strong protection against these claims. A seller who disclosed minimally is exposed.

See representations and warranties and due diligence.

When does the earn-out start to run and what affects it in the first 90 days?

The contingent tranche measurement period begins at closing. From day one, the metrics that determine whether the earn-out is paid are accumulating — revenue retention, EBITDA performance, client retention, or the conditions defined in the LOI and definitive agreement.

Three earn-out risks the seller must manage in the first 90 days:

1. Post-closing accounting changes: The buyer may change accounting policies after closing — cost allocation methods, depreciation, intercompany charges — that reduce reported EBITDA on which the earn-out is measured. The definitive agreement should state that earn-out metrics are calculated using the same accounting policies as the reference period. If it does not, raise it in the first 30 days.
2. Buyer operational decisions: The buyer may make operational decisions — price increases, cost cuts, client prioritization — that affect earn-out metrics. The seller's protection is audit rights and the measurement methodology defined in the agreement.
3. Retention of key clients: If the earn-out is based on client retention, the first 90 days of the buyer–client relationship are critical. The seller must remain involved in those relationships during the transition period — it directly affects their consideration.

See earn-out and LOI.

What should the seller do in the first 90 days post-closing?

Five specific actions:

1. Monitor the working capital adjustment

   Know exactly what working capital was at closing and track the adjustment calculation as it develops. Do not wait for the buyer to present a number — have your own calculation ready to verify theirs.

2. Fulfill the transition plan to the letter

   The transition plan is a contractual commitment. Every introduction not made, every client relationship not handed over, every process not documented is a potential risk to the earn-out. Execute the plan exactly as agreed.

3. Document everything

   Keep records of every client interaction during the transition, every decision made, every operational event. If an earn-out dispute arises in month 18, documentation from the first 90 days will matter.

4. Review the buyer's accounting policies

   Understand how the buyer is recording revenue and costs under their policies. If something differs materially from the reference period methodology, raise it immediately — not at earn-out measurement time.

5. Maintain the relationship with the buyer

   The post-closing period is not adversarial — the seller's earn-out depends on the buyer's success. A seller who stays engaged, supports the transition and communicates proactively creates the conditions for the earn-out to be paid. A seller who disengages after closing creates conflict.

The consideration structure simulator lets you model how changes in working capital, seller note and earn-out affect cash to be received. Consideration structure simulator.

How does a real case of adjustment and earn-out look in the first 90 days?

A specialty chemicals distributor closed at MXN $18.5M enterprise value. In the 45 days before closing, the seller collected receivables early and delayed payments to suppliers to improve cash position. Summary of the working capital adjustment:

Earn-out and timeline:

What do sellers ask about the first 90 days after closing?

Does the seller still have obligations after closing?

Yes — for 12–24 months through the transition period, the earn-out measurement period, and the survival period for representations and warranties. Specific obligations depend on the definitive agreement: transition services, non-compete clauses, earn-out cooperation requirements, and exposure to representation and warranty indemnity continue post-closing.

How long does the operational transition typically last?

In Mexican SME M&A, formal transition periods range from 3 to 12 months depending on business complexity and owner dependence. A business with an independent management team may need 3 months. One dependent on the founder may need 12 months of active involvement to transfer key relationships. The transition period and its obligations must be defined in the definitive agreement — not negotiated informally after closing.

Can the buyer claim after closing?

Yes — through the survival period for representations and warranties (12–24 months for general reps, longer for tax and labor). Claims must be made before the survival period expires. After the survival period, the seller's exposure to indemnity for those reps ends. That is why negotiating the survival period matters — a shorter survival period means less post-closing exposure for the seller. See representations and warranties.

What if the buyer does not pay the earn-out?

If earn-out conditions were met and the buyer does not pay, the seller has a contractual claim under the definitive agreement. The seller can demand payment with supporting documentation and, if unresolved, seek legal remedies. Prevention is more effective than enforcement: a well-drafted earn-out with defined metrics, clear measurement methodology, audit rights and dispute resolution procedures reduces the likelihood of a dispute. A vague earn-out is an invitation to conflict. See earn-out.