We are in the final stages of selling our business. The buyers want all vendor contracts transferred to them, but our attorney is suggesting we handle it through an assignment clause in the main purchase agreement rather than getting consent from each vendor separately. Has anyone dealt with this? I'm worried about vendors that have anti-assignment provisions.
Contracts
How to handle vendor contract transfers inside the main agreement
Your attorney is likely right. A well-drafted assignment and assumption clause in the APA can cover most contracts, but you still need to identify which ones require third-party consent. Check each contract for language about assignment without consent.
Did this last year. The main agreement handled the transfer of most routine vendor contracts, but we had three vendors with explicit anti-assignment clauses. Those required separate consent letters. It wasn't a big deal, just added a few weeks.
That's helpful. I'm going to pull every contract and flag the ones with consent requirements. Did the buyers push back on any of the required consents?
Buyers usually push back on everything., But if the contract is material to the business, they'll have to accept that consents take time. Just make sure the purchase agreement clearly allocates responsibility for obtaining those consents.
Make sure you list every single contract in the schedule. I've seen deals fall apart because a vendor contract wasn't disclosed and the buyer found out later. Full disclosure protects you from indemnification claims down the road.
Oldguy is right. Also, consider carve-outs in the assignment clause for contracts that are non-transferable by law or by their terms. You don't want the buyer thinking the main agreement overrides a vendor's anti-assignment clause.
The buyers didn't push back too hard, they just wanted a timeline. We agreed to use commercially reasonable efforts to get consents, and if a consent wasn't obtained by closing, the contract stayed with the seller until it could be transferred post-closing. That seemed to satisfy everyone.
The post-closing arrangement is something I hadn't considered. That might work for the few vendors that are slow to respond. I'll bring it up with our attorney.
Post-closing transfer can create issues with liability. If the seller keeps the contract temporarily, make sure the indemnification language is clear about who is responsible for what during that period.
Also watch out for change of control clauses. Some contracts treat a sale of the business as a change of control even if you are technically assigning to the buyer. That can trigger consent requirements you might not expect.
Good point point. We had a software vendor contract that defined change of control so broadly that even a majority shareholder change triggered notice. It was buried in an exhibit. Read the fine print.
I'm not a lawyer but I've bought and sold a couple of businesses. The main agreement can handle transfers, but you still have to follow the contract terms. You can't contract around the vendor's rights without their consent.
Exactly. The assignment clause in the APA is between buyer and seller. It doesn't force a vendor to accept the buyer as a party. If the vendor's contract says no assignment without consent, the main agreement doesn't change that that.
I appreciate all the responses. It sounds like the consensus is to use the main agreement for the general transfer but still map out every contract and identify consents needed. I'll work with our attorney on a schedule and the post-closing arrangement where needed.
That's the right approach. Good luck with the closing.
One more thing: make sure the buyer's assumption of liabilities is explicit for the transferred contracts. You don't want to be on the hook for obligations after closing if the buyer fails to perform.