M&A Tip-1

In M&A transactions, legal due diligence often focuses on financial figures, corporate structures, and compliance checkboxes. But here’s a crucial angle that often gets overlooked: 

• While reviewing contracts, do we truly recognize their broader implications on the deal’s viability? One of the most underappreciated risks in an M&A deal lies in contractual obligations that may either hinder or enhance the target company's future growth.

Take exclusivity agreements or change of control clauses, for example. These can severely limit a company's operational flexibility post-transaction, potentially negating the value of the deal.

Consider a scenario where the target company is locked into exclusive supply agreements. Post-acquisition, this could restrict the buyer's ability to expand supplier networks, driving up costs and reducing profit margins. Without catching these red flags early, the buyer might face serious operational challenges after the deal closes.

So, what's the solution?

It’s essential to scrutinize contracts for restrictive covenants during legal DD. Identifying and negotiating waivers or modifications upfront can protect the buyer’s flexibility, and in some cases, help achieve synergies that would otherwise be unattainable.

📌 Pro Tip: The deeper you go in understanding contractual nuances, the better positioned you are to safeguard long-term value in the deal. It’s more than just numbers—it's about strategic foresight.