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Assignment Provisions and the Valuation of Your Company

Remember that your key suppliers and key customers are the lifeline of your company. Without them, many companies would either cease to exist or be detrimentally affected.

Oftentimes, boiler plate agreements with vendors and customers do not allow the assignment of these contractual rights without the consent of the other party. Therefore, if your company is sold (via an asset purchase, where the buyer cherry-picks specific parts of your business that will be purchased), these material agreements cannot be automatically assigned to the buyer. As such, this gives the counter-party in these agreements an opportunity to renegotiate certain terms that could potentially increase your costs or decrease your revenue, ultimately affecting your company’s EBITDA, a key variable in determining the sale price of your company, under certain valuation models.

If you are negotiating contracts with an important customer or supplier, take a look at your assignment provision. At a minimum, it should give your company the right to assign this important document to “(i) any successor to your company by merger, consolidation or reorganization; or (ii) any purchaser of a majority of the assets or ownership interests in your company."

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