When preparing for an exit on a multi-year runway, what clauses in our customer and vendor agreements typically trigger diligence renegotiations, and how do we fix them early?

Question

Tyler Smith · Accepted Answer

Legal diligence is where deals stall and purchase prices get retraded. Acquirers hire corporate attorneys whose primary objective is uncovering contract vulnerabilities that justify discounts or special indemnity holdbacks.

Reviewing your contracts three years before listing gives you time to amend agreements naturally during normal renewal periods without alerting counterparties to an impending sale:

- Change of control provisions. Many standard commercial contracts contain clauses that allow a customer or supplier to terminate the agreement if ownership of your company changes. You must systematically remove or modify these clauses to require consent only upon assignment, or eliminate change of control triggers entirely.
- Uncapped liabilities and indemnities. Legacy contracts signed during the early days often contain broad indemnification clauses or lack reasonable limits of liability. Buyers view uncapped liability as an unquantifiable operational risk and will demand higher escrow holdbacks to offset it.
- Informal service scope and pricing terms. Agreements operating on outdated handshake terms or auto-renewed letter proposals must be transitioned onto standard Master Service Agreements with clear intellectual property assignment, pricing adjustment mechanisms, and definitive scopes of work.
- Non-compete and non-solicitation restrictions. Ensure that contracts do not restrict your company from serving specific geographic territories or vertical markets that a strategic acquirer might already operate within.

Fixing your commercial paper quarterly through focused legal Rocks prevents deal delays and preserves valuation leverage when the formal letter of intent is executed.