During the phase from LOI to close, the buyer's lawyers are pushing an incredibly restrictive ordinary course of business covenant that prevents us from making any tactical hires or software upgrades. How do we negotiate these pre-closing operational covenants so we do not freeze our momentum?

Question

Tyler Smith · Accepted Answer

During the critical window between signing the Letter of Intent and closing the deal, buyers use ordinary course of business covenants to freeze your operations. If you need to make a strategic hire or sign a new software vendor to hit your V/TO targets, their lawyers will argue that you are violating the agreement. This operational paralysis can damage your momentum right when you need to perform.

To avoid this, you must negotiate specific, quantitative thresholds directly into the covenants of your purchase agreement. Instead of a blanket restriction on all non-budgeted expenses, define clear carve-outs. For instance, establish a threshold allowing capital expenditures up to a specific dollar amount without buyer approval. Ensure you retain the unilateral right to replace departing staff members on your Accountability Chart, provided their salaries align with your existing budget.

Use your weekly Scorecard to prove to the buyer that these ongoing decisions are part of your business-as-usual playbook, not sudden anomalies. By establishing clear operating boundaries in the initial contract draft, you protect your leadership team's ability to run the business while keeping the deal on track. Do not let their diligence team slow your execution. Keep your Rocks moving forward and keep your team focused on delivering the results that justified your valuation in the first place.