Change-of-control clause

A contract term letting the counterparty terminate, renegotiate or withhold consent when the ownership of the other party changes.

Example

A manufacturing licence the licensor may end at its own option once the company is sold.

Important

The decision belongs to a third party with no obligation to you, so the loss cannot be bounded and therefore cannot be priced. It can only be made a condition of completing.

Related terms

• Deal killer — An established finding that no achievable price can address - because the asset stops being the asset, because the exposure has no floor, or because the counterparty has been shown to be unreliable.
• Conditions precedent — Things that must happen before a transaction completes - a consent obtained, a licence transferred, a regulatory approval granted.
• Customer concentration — The share of a business's revenue that comes from its largest few customers.

Lessons that explain it

• If one customer can leave, measure what leaves with them — Customer concentration shows how much revenue depends on a few customers. Measure the share of the largest customers and what happens to the business if one leaves. (9 min)
• Deal killers: the findings that end it — A deal killer is not a very large red flag. It is a fact that has already been established and that no price adjustment can reach. (8 min)
• A few clauses in a few contracts can decide an exit — Legal diligence reviews the company's most important customer, supplier and partner contracts for clauses that transfer risk or restrict future options: change of control, exclusivity, most-favoured pricing, uncapped liability and easy termination. (11 min)

All 578 terms in the Investing glossary