Due Diligence

Contract Due Diligence

Learn to read the agreements a business runs on for assignability, change-of-control clauses, and terms, because a sale can undo the very relationships you're paying for.

  • Beginner
  • 11 min total
  • 13 chapters

What decision this helps you make: Whether the contracts a business depends on will survive the sale and stay favorable, or unravel at closing.

What this topic is

Contract due diligence is reading the actual agreements a business runs on (customer, supplier, lease, employment) for assignability, change-of-control clauses, and commercial terms, because a business is largely a web of contracts.

Why it matters

A sale can trigger a counterparty's right to terminate or renegotiate, so the relationships you priced in can be undone by the purchase itself. Contract risk is invisible in the financials. It lives in the fine print of the documents, which summaries hide.

Who should learn it

Anyone buying a business whose value rests on its key agreements.

What you will understand

  • Understand contract diligence: reading the web of agreements
  • Check assignability and change-of-control clauses
  • Read commercial terms: duration, exclusivity, pricing, termination
  • Require consents where a sale triggers a counterparty right

Prerequisites

Common misconception

"The business has good contracts and the seller gave me a summary of the key terms, so that's enough." The summary shows the headline terms and hides the dangerous ones. A change-of-control clause in the lease, a termination-for-convenience clause in a key customer contract, a non-assignable exclusivity: these live in the fine print, and they can undo the value at closing. Read the actual documents, clause by clause.