Change of Control Analysis
Change of Control provisions are the #1 deal risk in M&A. At Mage, we systematically identify COC triggers across your entire data room, helping you understand which consents are critical and how deal structure affects your obligations.
Why Change of Control Is the #1 Deal Risk
A counterparty with a COC clause effectively has a veto right over your deal
If a key customer or vendor can terminate upon change of control, they can hold the deal hostage, demand a "consent fee," or kill the deal entirely by refusing to consent.
Attorneys analyze COC provisions not just as checklist items, but as pivotal risk allocation mechanisms that can alter deal structure, timing, and value.
COC Analysis by Agreement Type
Commercial Contracts (Customers & Suppliers)
The "Leverage Check"
Can a critical supplier use the COC clause to hold the deal hostage? If the contract allows termination upon change of control, they can demand a "consent fee" or better terms.
Direct vs. Indirect Triggers
Look for "indirect" COC language. A clause might trigger if the parent of the target is sold, inadvertently tripping clauses in subsidiaries that aren't the deal focus.
"Deemed Assignment"
Some contracts define COC as an "assignment," attempting to convert a stock sale (usually not an assignment) into a prohibited assignment by contract definition.
Commercial Leases
The "Recapture" Trap: Some leases allow the landlord to not only deny consent but to terminate the lease and take back the space merely because the tenant asked for consent.
Rent Reset Risk
Landlords often use COC as an opportunity to reset below-market rent to current rates as a condition of consent.
Strategy: If recapture rights exist, you may need to wait until the last minute to approach the landlord, or negotiate a specific waiver before revealing deal plans.
IP Licenses (Inbound/Outbound)
Personal Nature of IP
IP licenses are often "personal" and non-assignable by default under U.S. federal common law, even if the contract is silent.
Competitor Provisions
Scan for clauses prohibiting transfer to a "competitor." If the buyer is a competitor (broadly defined), this can be a major roadblock.
Loan Agreements (Credit Facilities)
Event of Default: In debt documents, COC is almost always an automatic Event of Default, requiring immediate repayment (acceleration) of the entire loan.
Check for "Portability"
Analyze if debt is "portable"—can buyer assume existing debt without refinancing? Look for "Permitted Holders" (pre-approved PE firms) or board control loopholes.
What Triggers COC? Deal Structure Matters
The deal structure determines whether COC clauses are triggered. Attorneys often choose a specific structure (like a Reverse Triangular Merger) specifically to avoid these triggers.
| Deal Structure | Triggers Assignment? | Triggers COC? | Notes |
|---|---|---|---|
| Asset Sale | Contracts must be explicitly assigned. Almost always requires consent. | ||
| Stock Sale | Entity stays the same; only owners change. Only specific COC clauses trigger. | ||
| Reverse Triangular Merger | Preferred structure. Under Delaware law, not an assignment. Avoids anti-assignment clauses. | ||
| Forward Merger | Target disappears into buyer. Delaware treats this as assignment by operation of law. |
Pro Tip: If a target has thousands of contracts with anti-assignment clauses but no specific COC clauses, attorneys will almost always structure the deal as a Reverse Triangular Merger to bypass consent requirements.
Strategies for Obtaining Consents
1The Materiality Threshold
Attorneys rarely seek consent for every contract. They categorize them into buckets:
Critical (Closing Condition)
Must obtain consent before closing. If not obtained, buyer can walk away.
Important (Best Efforts)
Seek consent, but if not obtained, buyer will close with an indemnity from seller.
Immaterial (Post-Closing Notice)
Don't contact until after closing. Risk of termination is low; don't "wake the sleeping dog."
2"Deemed Consent" Language
Draft a mechanism in the purchase agreement:
"We are selling to Buyer X. If we do not hear from you within 15 days, your consent is deemed granted."
Note: Not always legally binding if the original contract requires written consent, but works practically for low-risk vendors.
3Condition vs. Covenant Battle
Buyer's Position
Wants consents as a Condition to Closing: "I don't have to buy if you don't get the landlord's approval."
Seller's Position
Wants to just promise "commercially reasonable efforts" (a Covenant), so deal doesn't fail due to a slow third party.
4The Reverse Triangular Merger Workaround
If a target has thousands of contracts with "anti-assignment" clauses but no specific "change of control" clauses, structure the deal as a Reverse Triangular Merger. This allows the buyer to acquire the company without technically "assigning" contracts, bypassing consent requirements entirely (under Delaware law).
How Mage Keeps You Organized
COC Clause Detection
We automatically extract and flag change of control, anti-assignment, and consent provisions across all contracts
Consent Prioritization
Our analysis helps you categorize consents by materiality, so you know which ones are deal-critical vs. routine
Structure Impact Analysis
We map how different deal structures affect your consent obligations to inform your negotiation strategy