Most of our revenue is recurring and locked into multi-year enterprise contracts, but almost all of them have change-of-control clauses that require client consent. How do we stop the buyer from using this consent risk to discount our recurring revenue multiple?

Question

Tyler Smith · Accepted Answer

Multi-year enterprise contracts are highly valuable, but if they contain change-of-control clauses, a savvy buyer will use them as leverage to discount your multiple. They will argue that your revenue is at risk because key clients could use the transaction as an opportunity to renegotiate or walk away. To protect your valuation, you must address this consent risk structurally. First, audit your contracts and classify them by revenue contribution. You should identify which agreements actually require written consent versus those that merely require notification. For the top contracts that drive the majority of your revenue, you must prepare a coordinated client communication plan. Do not approach these clients until the transaction is highly certain, but have your transition materials ready. Show how the acquisition will benefit them, such as bringing more resources or advanced AI capabilities to the relationship. To handle the remaining risk at the closing table, propose a covenant-based structure rather than a price discount. Agree to a post-closing transition period where you and the buyer work together to secure the outstanding consents. You can structure a temporary escrow or a short-term seller note where a small portion of the purchase price is tied to successfully obtaining these consents within ninety days of closing. This keeps the burden of transition shared and prevents the buyer from taking an immediate, permanent discount on your recurring revenue. By showing a structured, proactive approach to client transition, you prove that your recurring revenue is stable and deserves a premium valuation.