Change of Control

Many contracts include change-of-control clauses that give rights to the other party if ownership changes. These clauses can significantly affect acquisitions.

Common examples include loan agreements, which may allow lenders to demand repayment; bond terms, which may give bondholders the right to sell their bonds back to the company at a premium; commercial contracts, which may allow customers or suppliers to terminate; licences that may require consent; and executive employment contracts, which may trigger large payments if executives leave after a takeover.

For example, a company's bank loan might allow the bank to demand full repayment if the company is acquired. A buyer must then arrange new financing as part of the deal.

Buyers review change-of-control provisions carefully during due diligence, since they can affect the cost and structure of a deal. Change of control is also relevant in regulation, since acquiring control of banks, insurers and some other businesses may require regulatory approval.