Buyers often choose a stock deal partly to avoid reassigning the company’s contracts: the entity keeps its agreements, and only its ownership changes. That works, until you hit a change-of-control clause. These provisions, and their cousins the anti-assignment clauses, can force you to get third-party consents even in a stock sale, and a missed consent can derail a closing.
Anti-assignment clauses
Many contracts say they cannot be assigned without the other side’s consent. In an asset deal, where contracts are transferred to the buyer, these clauses are triggered directly: you need consent to move the contract. That requirement is one of the main reasons buyers sometimes prefer a stock deal in the first place.
Change-of-control clauses close the loophole
A change-of-control clause treats a change in the company’s ownership as if it were an assignment, or gives the other party a right to consent or terminate when control changes. So even in a stock sale, where the contracting entity itself does not change, a change-of-control clause can require consent or let a key customer, landlord, lender, or licensor renegotiate or walk.
Where it bites hardest
- Leases. Landlord consent is one of the most common closing conditions, and commercial leases frequently restrict both assignment and change of control.
- Key customer and supplier contracts. A change-of-control right can let a major counterparty renegotiate or leave at the worst possible moment.
- Loans and licenses. Lenders and licensors often make a change of control a default or a consent event.
Why it matters to the deal
Consents take time and hand counterparties leverage. Identifying them early is essential, because a required consent that does not come through can hold up or kill a closing, and counterparties sometimes use the moment to extract a concession they could not get otherwise.
What to do
- Inventory your key contracts for anti-assignment and change-of-control provisions as soon as a deal is contemplated.
- Map which consents are required under each structure, asset versus stock, because the answer differs.
- Start the consent process early and build the needed consents into the closing conditions.
- Where consent is discretionary, plan for the counterparty to ask for something in return.
The structure you pick does not decide the consent question by itself. Read the actual contracts, because a change-of-control clause can pull a stock deal right back into the consent process a buyer hoped to avoid.
If you have questions about assignment or change-of-control provisions in your contracts, or any other services, you can reach Martin at martinkreshon.com, northcitylaw.com, or call (206) 929-0609. You can also find reviews for Martin on Google and Avvo.