In the past, we have issued Deal Notes® addressing Conditions Precedent (DN 054 Feb. 2023 and DN087 Oct. 2023) and the need for owners to obtain consents from key customers when selling their companies. In many cases, buyers will ask for these consents to ensure continuity after the sale. In some cases, the need for these consents can be required contractually, wherein they are referred to as Change of Control Provisions (“CCPs”).
While CCPs can be found in different types of agreements, they are often found in the aerospace and defense industry in customer contracts. And while some CCPs can be lengthy, some are short and to the point, as in the example below:
“In the event of an acquisition by any person or group of more than 50% of the assets or voting rights of THE COMPANY, then THE CUSTOMER shall have the option to terminate this Agreement by providing written notice within [number] days of becoming aware of the Change of Control.”
The concept is rather simple and has no impact on your business until you sell your company. And if these provisions are only in contracts that are immaterial to your business, then they will never have any meaningful impact. However, if you have CCPs in contracts that represent significant revenue to your business, then these will have a significant impact on you – when you want to sell your business.
If you have CCPs in significant customer contracts, you will want to work with your M&A bankers and legal counsel to plan for the optimal time and manner to address these with your customers. There are substantial risks to addressing CCPs too early, too late, or in the wrong manner. Resolving CCPs optimally is one of the most complex and important tasks in the process of selling a middle-market aerospace and defense company.
Have a great day,
Bill Alderman
Founding Partner
