Handling Contract Assignments and Approvals Post-Transaction

searcher profile

December 08, 2024

by a searcher from University of Alberta - School of Business in Miami, FL, USA

I’m finalizing the acquisition of a facility management services business through an asset sale and need advice on handling Contract assignments. The seller prefers to wait until the first day of the transition to process these assignments, which makes sense from their risk mitigation perspective in case the deal doesn’t close.

However, I’m concerned about how to manage the transition period before the assignments and corporate approvals are finalized. How can I ensure continuity of service for key accounts during this interim phase?
In some cases, there are no contracts, rather service agreements, but corporate approval is still required for us to be recognized as a vendor.

I’d appreciate any advice.

0
6
51
Replies
6
commentor profile
Reply by a professional
from University of Michigan in Detroit, MI, USA
Hi Anon, how have you structured the deal? Is it sign then close? If so, you should get consent to assign the key contracts during the period between signing and closing, and closing should be conditioned on getting those consents. Then, at the closing, you can assign all the contracts in one go and service can continue uninterrupted. Yes, as ^redacted‌ suggests, you could also proceed with an equity deal. But there are drawbacks (liability and tax) to going that route. You will also need to check for change of control provisions in the key contracts. Usually, we only recommend purchasing the equity of a company if it would be impractical or unduly burdensome to have the key contracts assigned. Your lawyer should be able to advise. Feel free to reach out with questions at redacted
commentor profile
Reply by a professional
from University of Massachusetts at Lowell in Chicago, IL, USA
Generally, if the company has significant customer contracts then a stock purchase is preferable from a logistics perspective. However, the buyer looses out on favorable tax treatments. Question for you, have you seen profitability by customer/contract? Have you reviewed the contracts to see whether there are annual increases in prices? I have seen many instances where companies are locked in at unfavorable rates, so be mindful here.
commentor profile
+4 more replies.
Join the discussion