Change of control clause

Definizione

A change of control clause entitles a party to act (commonly to terminate, renegotiate, or require consent) when the other party undergoes a defined shift in ownership or control, such as a takeover or merger. It protects against being bound to a counterparty now controlled by a competitor or a less creditworthy owner. The trigger and consequences must be precisely defined, as such clauses can significantly affect M&A transactions.

Esempio

When the supplier is acquired by a competitor, the customer invokes the change of control clause to terminate the framework agreement.

Perché rappresenta un rischio aziendale

A change of control clause can kill an M&A deal if it is not identified and addressed in due diligence: if enough key contracts contain exit rights triggered by acquisition, the deal may unravel at closing. Equally, a business without these clauses in its own supplier contracts may find itself locked into agreements with new counterparties whose priorities directly conflict with its own after an acquisition.

Come gestirlo

• Identify all change-of-control clauses in your supplier and customer contracts as part of any M&A due diligence.
• Define the trigger threshold precisely (e.g. acquisition of more than 50% of shares) to avoid disputes about application.
• Negotiate a notice and cure window so the affected party has time to seek consent rather than facing immediate termination.
• Keep the contract repository up to date so that, in a deal process, every relevant clause can be located quickly.