Critical M&A Contract Terms #1: Allocating risk for seller contract assignments

We begin our blog series of Ten Critical Terms in any M&A Contract with the allocation of risk for the seller in contract assignments. How might contract assignments affect a deal? What do you need to do to keep assignments from holding up a deal? Complications arise when the seller’s customer license agreement includes change of control or assignment clauses. Since you can’t revise existing customer contracts, you’ll need to negotiate with the buyer to minimize the impact of this assignment process.

Structuring the deal as a stock transaction instead of an asset sale may circumvent the assignment requirement. If not, negotiate language in the purchase agreement to limit the approvals required before closing to a smaller universe of high value customers—these are who the buyer is most concerned about anyway. The remaining assignment can come after the deal closes.

 

Once the contract issues are settled, get out in front of your customers as early as you can, and face-to-face if possible, to sell them on the virtues of the merger and why this is in their best interests. Stress the need for their timely agreement, while tempering any ideas they may have about using this to renegotiate contract terms. On key accounts, engage execs from the buyer to assist you.

 

Keep an eye on our blog for the next installment in the series – financial reps and warranties – and we’ll be compiling all ten of the terms here

 

Posted by , Chairman Emeritus on 1 July 2015
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