Our largest client accounts for thirty percent of our total revenue, and their multi-year contract happens to expire right in the middle of our target M&A diligence window. How should we handle this renewal to prevent a buyer from blowing up the transaction?

Question

Tyler Smith · Accepted Answer

Exiting while your largest contract is up for renewal introduces severe transaction risk. Any sophisticated buyer will either pause the sale, demand a massive escrow holdback, or attempt to cut the purchase price by the full margin value of that single account if renewal is uncertain.

You must address this contract well before entering exclusivity. If your target closing date overlaps with the renewal date, open discussions with the client six to nine months early. Offer modest operational concessions or pricing stability in exchange for executing a three-to-five-year contract extension ahead of schedule.

Ensure the renewed agreement includes standard assignment language that does not require customer consent in the event of an ownership change or equity sale. If the contract contains strict change-of-control provisions, the buyer will make closing contingent on that customer signing an explicit assignment waiver, handing your client enormous leverage over the transaction.

If early renewal is impossible, do not conceal the timeline. Disclose the renewal date early in your confidential information memorandum. Provide documented proof of service integration, multi-threaded relationships across several operational leaders, and high switching costs.

If the renewal drags into diligence, offer a contingent structure such as a short-term earnout or promissory note tied specifically to that client renewing on specified terms, rather than accepting a permanent haircut on the baseline EBITDA multiple.