We want to avoid any legal roadblocks or price renegotiations once we are in due diligence. How do we audit our existing commercial contracts for change of control and assignability clauses on our exit runway?

Question

Tyler Smith · Accepted Answer

A major pitfall in the final stages of a transaction is discovering that your most valuable customer or vendor contracts cannot be transferred to the buyer without prior written consent. This gives those parties immense leverage to renegotiate terms, which can delay your deal or force you to accept a lower purchase price.

To de-risk this, initiate a comprehensive contract audit as a specific quarterly Rock for your leadership team, led by your internal legal counsel or an external transaction attorney. You need to review every active client contract, vendor agreement, and software license to identify two specific clauses:
- Assignability: Look for language that prohibits the transfer of the contract to a corporate successor.
- Change of Control: Identify clauses that trigger a default or allow the other party to terminate the agreement if the ownership of your company changes.

Once you have mapped out your contract landscape, categorize them by risk level. For contracts that require consent, develop a systematic plan to address them. In some cases, you can renegotiate these agreements during regular renewal cycles to include friendly transfer provisions.

For critical, high-revenue accounts that require explicit consent, plan the timing of when you will approach them. This is usually done late in the transaction process, once the buyer is fully committed and the deal is highly likely to close. By identifying these issues early on your exit runway, you prevent unexpected legal hurdles from destroying your hard-earned deal momentum.