We are reviewing our customer and vendor agreements on our exit runway and discovered several critical contracts have change-of-control clauses. How do we operationally handle these agreements so they do not stall our sale?

Question

Tyler Smith · Accepted Answer

A change-of-control clause gives your customer or vendor the right to terminate the contract if the ownership of your business changes. During due diligence, a buyer's legal team will review every contract. If your key revenue or supply agreements require consent to transfer, those contracts become major liabilities. To handle this, you need to systematically audit all active agreements. Identify every contract that contains a change-of-control provision. Categorize them by financial impact. For non-critical contracts, you can often address them during the standard transition notifications. For your top customers or single-source vendors, however, you must take proactive steps. During your exit runway, work to renegotiate these agreements as they come up for renewal. Attempt to remove the change-of-control language entirely or replace it with a clause that allows assignment to any qualified affiliate or purchaser of the business assets. If a key customer refuses to remove the clause, you will need to plan a strategic communication approach with your M&A advisor. You may need to obtain their written consent before closing, which requires a delicate conversation. By identifying these contractual hurdles early on your runway, you prevent them from becoming last-minute roadblocks that a buyer can use to demand a price reduction or delay the transaction.