Buyers of middle market aerospace and defense companies will want to obtain two types of consents from the seller’s key customers, before acquiring a business. First, buyers will want key customers to formally agree in writing not to invoke change of control termination provisions. Second, buyers also will want to talk with key customers to obtain informal comfort that they are satisfied by the seller’s performance with respect to metrics such as on time delivery, product quality, and responsiveness.
Since we founded our firm in 2001, we continue to see buyers and sellers take very different approaches to obtaining ‘customer consents’, as follows:
Buyers want to talk with the seller’s key customers early in the sale process. Conversely, sellers want to delay those interactions until late in the process. Clearly, the timing of these interactions shifts the associated risks between the parties. The sooner they take place – the less risk on the buyer; the later they take place – the more risk on the buyer, and visa versa for the seller.
Buyers want to contact the customers independently, with no advance notice from the sellers. Conversely, sellers want to: i) be a party to all interactions between the buyers and their customers, ii) control the script / conversation, and iii) inform their customers of the situation well in advance of contact from a buyer.
Clearly, “customer consents” is a critical buyer due diligence step that needs to be negotiated and managed intelligently, to ensure a smooth process and a successful sale.
Have a great day everyone!
Managing Director, Defense