Understand all the contract language your company has signed up for
Ask yourself this question – Are there any clauses in any agreements that we have signed over the years with customers, suppliers or partners that may impact our ability to sell our company?
A common question we get from new clients is where do private company owners get negative surprises during the due diligence process with an acquirer? One such area pertains to the acquirer reading through all of the contracts you have executed with third parties and finding language that could impact your sale:
- Right of First Refusal – this clause may allow a third party to have the first consideration to acquire your business before any other entity can be approached. This would preclude you from talking with any other party until you get a release from the party you’ve accepted this language with.
- Change of Control – this clause may require you to get prior written consent from the party you have this contract with which puts them in the position to approve or disapprove your ability to sell your company. Or this language may only require you to give them advance notice of your plans to sell your company but doesn’t give them right to approve or disapprove such plans.
- Sharing of Intellectual Property – this clause may require you to share any IP that you’ve created with a third party that you’ve accepted this language with. This would concern your potential acquirer if they are placing value on your IP and find out in reviewing an executed contract that you have to share that IP with a third party.
Prior to engaging brokers or bankers and certainly prior to engaging third parties in discussing the possible sale of your business, ensure your team hasn’t executed any contracts or agreements with language that might impact your ability to sell your company or at the very least raise a concern with a potential acquirer.
Develop a plan for preparing your business for an optimal exit event, one that will make you euphoric with the outcome. Conducting a contract review is a critical step in your exit preparation.
