Pre-existing clauses that may condition an M&A transaction
In many company sale transactions, the main point of friction is not, in some cases, the price or the financial structure of the deal. Nor is it usually a lack of market interest or business potential. In practice, it is often specific contractual clauses that end up decisively conditioning the viability of the process.
Frequently, the real obstacle arises much earlier, in clauses included in documents signed years before, at a time when a potential M&A transaction was not even on the company’s radar and such provisions were not perceived as a risk factor.
Shareholders’ agreements, key commercial contracts or “informal” variable remuneration arrangements that once addressed a specific need may, over time, become a blocking element, a source of delay or, at the very least, a material value-erosion factor when an opportunity for a sale or the entry of an investor arises.
Pre-existing clauses in shareholders’ agreements and articles that no longer reflect the company’s reality
One of the most common issues in M&A processes is the existence of shareholders’ agreements designed for an early stage of the project that have become completely outdated. These documents are often drafted for simple ownership structures, with few shareholders and aligned objectives, and fail to evolve at the same pace as the business.
In this context, poorly calibrated drag-along or tag-along rights, excessive blocking majorities or veto rights that once made sense may hinder or even directly prevent a transaction. The failure to adapt these mechanisms to the company’s current reality generates internal tensions among shareholders and creates uncertainty for potential buyers or investors.
A similar situation arises with statutory restrictions on the transfer of shares or interests. Although their original purpose is often legitimate, when not reviewed periodically they can become an unnecessary obstacle, extending timelines, introducing uncertainty or weakening the seller’s negotiating position.
Key contracts and change-of-control clauses
Another frequent source of conflict emerges during the review of strategic contracts. Agreements with key clients, essential suppliers, financial institutions or technology partners often contain change-of-control clauses that go unnoticed until advanced stages of the transaction.
These clauses may require prior consent, allow early termination or enable the renegotiation of contractual terms. Where the affected contract is critical to the continuity of the business, the transaction becomes conditional on the will of third parties unrelated to the deal, with a direct impact on timing and perceived company value.
Clauses that may not concern an entrepreneur at a particular stage of the project can become a real problem when a sale or the entry of a controlling third party is contemplated. Although it is often difficult to remove such provisions from financing agreements, it is essential to pay close attention to their inclusion in contracts with third parties, particularly strategic clients or suppliers. At the very least, efforts should be made to replace termination or renegotiation rights with simple notification obligations not subject to express consent.
Pricing mechanisms and post-closing disputes
Even when the transaction progresses successfully, certain contractual elements may give rise to disputes at a later stage. This is particularly the case with variable price mechanisms or earn-outs that have not been defined with sufficient precision.
The absence of objective metrics, clear rules on business management during the earn-out period, or effective dispute resolution mechanisms often leads to conflicts between buyer and seller after completion. Rather than facilitating alignment, these mechanisms can erode the relationship between the parties and generate unnecessary legal risk.
Poorly structured variable remuneration schemes and employment contingencies
Another issue that frequently remains unnoticed until late in the process is the existence of poorly structured variable remuneration systems, especially in smaller companies or those with less professionalised structures.
It is not uncommon to find bonus schemes without objective parameters, awarded on a discretionary and repeated basis over time. While such practices may be common in day-to-day operations, they create significant risks when analysed in the context of an M&A transaction.
The problem is not only the lack of alignment between incentive and actual performance, but also the precedent these decisions establish. The repetition of certain payments may ultimately give rise to acquired rights, significantly increasing the employment-related contingencies associated with the transaction.
In practice, this uncertainty translates into price adjustments, demands for specific warranties or an increased perception of risk on the buyer’s side, becoming a material point of friction in negotiations.
The issue is not the clauses, but the timing
The common denominator in all these situations is not so much the existence of certain clauses, but when they are identified. Too often, these issues are analysed only once a binding offer or letter of intent has already been signed, with tight deadlines and a clear imbalance in negotiating power.
In that context, room for manoeuvre is limited, and solutions typically involve economic concessions, price adjustments or the assumption of risks that could have been avoided with prior review.
Preparing a company for an M&A transaction should not begin when an interested buyer appears. Legal and strategic anticipation allows potentially blocking or value-eroding elements to be identified and corrected in time, protecting company value and facilitating investment or divestment processes under more favourable conditions.
Regular review and adaptation of corporate and contractual structures not only mitigate risks but also place the company in a stronger position for any M&A process.
If any of these situations sound familiar, a preventive legal review can make a decisive difference. At Devesa, we support companies and corporate groups in analysing and updating their corporate and contractual structures to anticipate risks and facilitate M&A transactions under optimal conditions.
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