Legal Blog

M&A Nuggets: Be Prepared … for Due Diligence, Before You Seek to Sell Part 2 – Change of Control Clauses

 

 

This is Part 2 of a series on steps business sellers should take to make sure their house is in order before going to market. During the due diligence process, purchasers investigate whether any of the seller’s contracts requires the consent of the other party to the contract to the sale of the business. Those provisions, known as change of control clauses, can take various forms, including treating a sale of the business as an assignment of the contract that must be approved by the other party, allowing the other party to terminate the contract on a change of control and giving the other party the right of first refusal to purchase the business. Change of control clauses are routinely found in bank loan documents and real estate leases. On occasion, these change of control clauses can be found in vendor, supplier or customer contracts. It is important to be proactive, prior to beginning the negotiation of the sale of the business, to determine which parties have change of control rights, what those rights are and the content and timing of any notices that are required to be given. A contract may require a notice to be provided to the other party prior to the seller actually entering into a contract to sell the business, that is, when the seller intends to place the business on the market for sale. Just as a seller of real estate would want to know of a major structural problem rather than having the buyer discover the problem after a contract is signed, the seller of a business needs to understand what change of control provisions exist. Dealing with change of control provisions will require proper planning and preparation. Waiting for the buyer to discover the change of control provisions will disrupt and delay the entire sale process.

 

If you have any questions about this or any other M&A issue,
please contact Glenn Solomon at gsolomon@offitkurman.com or 443-738-1522.

 

ABOUT GLENN D. SOLOMON

gsolomon@offitkurman.com | 443-738-1522

Glenn D. Solomon is a principal at Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years. He has extensive experience in the purchase and sale of businesses, structuring ownership agreements, and advising companies in financial distress.

 

 

 

 

 

 

 

 

 

 

ABOUT OFFIT KURMAN

Offit Kurman, one of the fastest-growing, full-service law firms in the United States, serves dynamic businesses, individuals and families. With 17 offices and nearly 250 lawyers who counsel clients across more than 30 areas of practice, Offit Kurman helps maximize and protect business value and personal wealth by providing innovative and entrepreneurial counsel that focuses on clients’ business objectives, interests and goals. The firm is distinguished by the quality, breadth and global reach of its legal services and a unique operational structure that encourages a culture of collaboration. For more information, visit www.offitkurman.com.

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