We are starting a three-year exit runway and have dozens of multi-year customer agreements in place. How do we audit and update these contracts to ensure they do not contain toxic change-of-control clauses that could tank a transaction?

Question

Tyler Smith · Accepted Answer

Many owners think long-term customer contracts are an automatic value driver. However, if those contracts contain restrictive change of control clauses, they can become a massive liability during due diligence. A change of control clause that requires the customer's prior written consent to assign the contract gives your clients leverage to renegotiate rates or walk away entirely when you sell the business.

To protect your valuation, you must conduct a thorough contract audit. Review every active customer agreement for assignment and change of control language. Your goal is to ensure that the contracts are fully assignable to an acquirer without requiring customer consent.

For any key accounts with restrictive clauses, use your exit runway to transition them to your standard, buyer-friendly terms. You do not need to make this a dramatic event. Simply update the terms during their natural renewal cycles or when negotiating contract expansions. Frame the updates as standard administrative cleanup to streamline operations. This proactive cleanup removes a major hurdle for the buyer's legal team and ensures your recurring or contract-based revenue is fully transferable on day one.