You’ve spent years building a company worth acquiring. The product works. Customers are happy. Revenue is growing. Then due diligence starts, and a buyer’s legal team starts pulling apart your customer and vendor agreements.
What they find in those contracts can move your valuation by millions – sometimes in the wrong direction.
Most founders treat contract review as a compliance exercise. Sign the deal, file the document, move on. But buried inside your standard agreements are five clauses that function less like legal formalities and more like equity-value levers. They determine how much of your company you can actually transfer, what liabilities follow you through a transaction, and whether a buyer can even complete the acquisition without renegotiating half your customer base.
Here’s what each one does to your exit – and what to look for before it becomes a due diligence problem.
Change-of-Control Clauses: The Clause That Can Stop a Deal Cold
Imagine you’ve negotiated a letter of intent. The price is right. The buyer is serious. Then their legal team flags that six of your top ten customer contracts include change-of-control provisions – language that gives customers the right to terminate or renegotiate if your company is acquired.
That’s not a hypothetical edge case. It’s one of the most common deal complications we see in the $1.5M-$3M revenue range.
Change-of-control clauses come in two forms. The first requires customer consent before an acquisition can close – meaning the buyer is purchasing a company whose contracts may evaporate the moment the deal is announced. The second triggers automatic termination rights if ownership changes hands without notice. Either version creates leverage for customers who suddenly realize they can extract better terms or walk away.
What to flag: Any language referencing “change in ownership,” “change in control,” “merger,” or “acquisition” in the termination or assignment sections of customer agreements. If those clauses exist, know about them now – not when a buyer’s attorney finds them first.
What you want instead: A carve-out that permits assignment in connection with a merger, acquisition, or sale of substantially all assets, without requiring prior consent.
Assignment Clauses: Who Owns the Relationship After the Sale
Related but distinct from change-of-control, assignment clauses govern whether your contracts can be transferred to a new owner at all.
Take this scenario: A buyer acquires your company through an asset purchase rather than a stock purchase. In a stock deal, they’re buying the legal entity – the contracts stay in place. In an asset deal, they’re buying the assets, and your contracts technically need to be assigned to the new entity. If your agreements prohibit assignment without consent, the buyer may need to re-sign every customer individually before the deal can close.
For a company with 40 customers, that’s 40 separate conversations. Some will use the moment to renegotiate pricing. Some won’t respond. Some will decline.
What to flag: Language that says the agreement “may not be assigned without prior written consent” without a carve-out for M&A transactions.
What you want: Permitted assignment language that explicitly covers mergers, acquisitions, and transfers to affiliates or successors – with notice required but consent not required.
Indemnification Scope: Where Uncapped Liability Hides
Indemnification clauses are where acquirers get nervous – and for good reason.
Most founders understand that indemnification means one party agrees to cover the other’s losses in certain situations. What’s less understood is how scope and caps interact to create either manageable risk or open-ended exposure.
Here’s the specific place to look: IP infringement indemnities.
Consider a standard SaaS agreement where you’ve agreed to indemnify your customer if your software infringes a third party’s intellectual property. That clause sounds reasonable. The problem is when that indemnity is uncapped – meaning your exposure isn’t limited to the contract value, or even to a multiple of it. It’s unlimited.
If a patent holder later asserts that your product infringes their patent and sues your customer, you may be on the hook for their legal defense and any damages – regardless of what the contract was worth.
A buyer doing due diligence on your company is effectively buying that liability. If your IP indemnities are uncapped across dozens of customer agreements, the acquirer’s risk calculation changes significantly. Expect either a price reduction, an escrow holdback, or reps and warranties insurance requirements that add cost and complexity to the deal.
What to flag: IP indemnification language without an explicit liability cap. Also watch for indemnities that extend to “any third-party claim” without limiting the category of claims covered.
What you want: IP indemnities capped at a multiple of contract value (typically 1x-2x total fees paid), with carve-outs for claims arising from your customer’s modifications to your product or their combination of your product with third-party software.
This is also where having integrated IP counsel – not just contract counsel – matters. The attorney reviewing your indemnification scope should understand patent exposure, not just contract structure.
MFN and Exclusivity Clauses: The Provisions That Constrain Your Future
Most-favored-nation (MFN) clauses and exclusivity provisions are often signed without much thought early in a company’s growth. They become significant problems later.
An MFN clause guarantees a customer that they’ll always receive your best pricing – meaning if you ever discount for another customer, you owe the MFN customer the same deal retroactively. For a company that’s grown and evolved its pricing model, this can mean a buyer is acquiring a company with pricing obligations that don’t reflect current market rates.
Exclusivity clauses are often even more constraining. Picture a vendor agreement that grants exclusivity in a particular market segment or geography. At the time you signed it, that segment wasn’t a priority. By the time a buyer is evaluating your company, that exclusivity may be blocking expansion into a market they specifically wanted to acquire you for.
What to flag in MFN clauses: Language that’s open-ended rather than time-limited, or that applies to pricing broadly rather than to a specific product or service tier. Also flag MFN clauses that don’t include a sunset date.
What to flag in exclusivity clauses: Any provision that restricts your ability to serve customers in a particular industry, geography, or use case – especially if that restriction survives the initial contract term through automatic renewal.
The Embedded Counsel Advantage: These Reviews Happen Continuously
The founders who enter due diligence in the strongest position aren’t the ones who hired a lawyer when the LOI arrived. They’re the ones whose agreements have been reviewed, negotiated, and structured with exit implications in mind throughout the company’s growth.
That’s the practical difference between reactive outside counsel and embedded fractional counsel. When contract review is a continuous function – part of how every new customer agreement and vendor deal gets handled – these clauses get caught before they accumulate. You’re not discovering your change-of-control exposure when a buyer finds it. You already know what’s in your agreements, because someone has been watching.
The five clauses above aren’t exotic or unusual. They appear in standard agreements across every industry. What’s unusual is having someone in your corner who reads them with both a business lens and an IP lens – and who flags them before they affect your valuation.
Have you reviewed your top ten customer agreements for any of these provisions? If not, that’s a good place to start.
The Garcia-Zamor Law Firm provides outsourced in-house counsel combining business law and intellectual property expertise. Led by Ruy Garcia-Zamor (founder and business strategy expert), Elliott Alderman (IP specialist with 40+ years experience), and Claudia Castillo (employment law specialist), our team serves growing companies with strategic legal leadership. Learn more at garcia-zamor.com or call (410) 531-9853.
