Change-of-Control Clause
A contract provision triggered by a merger, acquisition, or ownership transfer that gives the non-transferring party the right to terminate or renegotiate.
A change-of-control clause is a contract provision that is triggered when ownership or control of one of the contracting parties changes. This can occur through a merger, acquisition, or significant equity transfer. These clauses typically give the non-transferring party the right to terminate the agreement, renegotiate terms, or require consent before the contract can be assigned to the acquiring entity.
Why It Matters Change-of-control clauses are frequently overlooked during M&A due diligence and can create significant complications after a deal closes. A vendor or customer may have the right to walk away from agreements after an acquisition, disrupting operations or revenue. Identifying all change-of-control provisions before a transaction closes is critical for accurate deal valuation and post-merger integration planning.
In Practice A company is acquired for $50M. During post-merger integration, the acquirer discovers that three of the target company's most important vendor agreements include change-of-control clauses. Two of them allow the vendor to terminate immediately upon change of ownership. The acquirer must renegotiate both agreements under time pressure, from a position of weakness.