Our customer and vendor contracts have never been thoroughly audited. What specific contract terms and assignability clauses should we review and fix two years before an exit to prevent diligence deal-killers?

Question

Tyler Smith · Accepted Answer

Contract terms are one of the most common friction points during buyer legal diligence. If key customer or vendor agreements cannot be transferred to a new owner without third-party consent, your deal structure and purchase price can be held hostage right before closing. Begin auditing your commercial contracts twenty-four months before going to market.

First, examine change of control and assignment clauses in customer agreements. Many legacy contracts contain language stating that any change of ownership or transfer of equity requires written consent from the customer. If your top ten customers have this clause, you will be forced to notify them of the transaction before closing. That creates immense deal risk because customers can demand fee concessions, renegotiate terms, or walk away entirely. Work systematically during regular contract renewal cycles to replace restrictive clauses with language permitting assignment to any successor entity without prior consent.

Second, review vendor and software agreements. Essential software platforms, supplier agreements, and facility leases frequently contain non-transferability provisions. If your core enterprise software or key component supplier refuses to assign their contract to the buyer on current terms, the buyer may renegotiate their EBITDA assumptions or delay closing.

Third, eliminate informal handshakes. Convert all verbal agreements or expired master service agreements into active, executed contracts with clear termination notice windows. Buyers discount revenue that is not legally secured. Fixing contract language during standard annual renewals avoids raising suspicion while securing your revenue base.