Common M&A pitfalls: The overlooked contracts that can undermine a business sale

Mergers and acquisitions do not succeed on headline terms alone. Once a deal reaches due diligence, the focus shifts quickly to the detail behind the business, and that is where problems often emerge. 

Overlooked or poorly managed contracts can have a direct impact on how a buyer assesses both risk and value. Agreements that have not been updated, arrangements that were never formalised, or obligations that have not been fully understood can all change the shape of a transaction. What appeared commercially sound at the outset can become more complex as these issues come to light. 

The consequences are immediate. Buyers may revisit price, seek additional protections, or slow the process while concerns are investigated. In some cases, transactions fall out of exclusivity or do not proceed. Identifying and addressing these risks in advance gives business owners greater control over the process and helps protect value throughout an M&A transaction. 

When customer relationships do not translate cleanly into contractual certainty 

A buyer will look closely at your customer relationships, not just in terms of revenue, but in terms of how secure that revenue is once ownership changes. 

Where relationships are undocumented or supported by outdated or expired contracts, uncertainty quickly becomes a factor. A buyer cannot assume that income will continue if there is no clear contractual framework underpinning it. Even where agreements exist, inconsistencies between what is written and how the relationship operates in practice can lead to further enquiries, often at a stage where momentum is critical. 

Change of control provisions are a frequent pressure point. These clauses are often short and easily overlooked, particularly where contracts were agreed some time ago or have been rolled forward without detailed review. It is not uncommon for them to sit within boilerplate assignment clauses  and many business owners are unaware they exist until they are identified during due diligence. 

If key customer contracts allow termination or renegotiation on a sale, that risk will be reflected in how the business is valued. Buyers will not ignore it, even where the commercial relationship appears stable. It is at this point that price adjustments or additional contractual protections are often introduced. 

Early review makes a measurable difference. Checking your largest customer contracts specifically for provisions dealing with assignment or change of control, and ensuring that key relationships are supported by current, signed agreements, allows these risks to be managed in advance rather than introduced into negotiations at a late stage. 

Supplier arrangements and the obligations a buyer inherits 

Supplier contracts often receive less attention until a transaction is underway, but they can materially affect how a buyer assesses the business. 

Contracts that commit the business to long notice periods, fixed volumes or automatic renewals can limit flexibility post-acquisition. Automatic renewal provisions are a common example. A contract that has quietly rolled over for another fixed term can restrict a buyer’s ability to renegotiate or exit the arrangement immediately after completion. This is often only picked up when a buyer reviews contract schedules and identifies renewal dates that have already passed. 

Where supply is concentrated, the issue becomes more acute. Dependence on a small number of suppliers, particularly where contractual protections are weak or absent, introduces a level of operational risk that buyers will examine closely. In practice, this can lead to more detailed due diligence enquiries or delays while the position is clarified. 

Personal guarantees are another area that is frequently overlooked. These are contractual commitments given by the business owner personally, often entered into at an earlier stage of growth. They do not transfer automatically to a buyer, and if they are identified late in the process, they can delay completion while releases or replacements are negotiated. 

Reviewing key supplier contracts with a focus on renewal terms, termination rights and any personal exposure is often a straightforward exercise, but one that can prevent avoidable complications during a transaction. 

Your people, your documentation, and the reality behind both 

For many businesses, the value being acquired is closely tied to the people within it. Buyers will want to understand not only who those individuals are, but what contractual obligations exist in relation to them. 

Employment contracts need to be in place and, importantly, they need to reflect reality. It is not unusual to find that written terms have not kept pace with how the business operates in practice, particularly where roles have evolved or informal arrangements have developed over time. Where there is a gap, a buyer is left to assess risk without a clear contractual position. 

Attention will also be given to confidentiality provisions, intellectual property clauses within employment contracts and any post-termination restrictions. These contractual protections are central to preserving value after completion. Where they are missing or inconsistently applied, this often becomes a point of negotiation, with buyers seeking additional protection in the transaction documents. 

Where TUPE applies, the position becomes more structured. Employees transfer on their existing terms, and there are defined obligations around information and consultation. Buyers will expect to see that the underlying employment documentation supports that process and has been properly maintained. 

Ensuring employment contracts and associated documentation are accurate and up to date is often one of the more accessible areas to address, but it is also one of the first areas a buyer will test. 

Intellectual property 

Intellectual property is often assumed to sit within the business, but that assumption does not always withstand scrutiny. 

Issues frequently arise where freelancers or consultants have been engaged. In many cases, work will have been commissioned informally, agreed by email and paid for without a formal contract in place. The assumption is that ownership follows payment. Legally, that is not the case unless the agreement expressly assigns those rights. 

This can affect core assets such as branding, software or marketing materials, and it is often only identified when a buyer reviews the underlying contractual position. Where ownership is unclear, buyers will typically require this to be resolved before completion or seek specific protections, both of which can delay progress and affect negotiating dynamics. 

This can be more difficult to resolve where the original contractor is no longer engaged or is difficult to contact, which is why early review is important. 

A focused assessment of how key assets were created, and whether ownership has been properly documented through appropriate contracts, allows these issues to be addressed before they become a point of contention. 

Property arrangements and the ability to maintain continuity 

Where a business operates from leased premises, the contractual terms of that lease will be a key focus. 

In many cases, landlord consent is required before a lease can be assigned. This introduces a third party into the transaction process, with its own timetable and requirements. If this has not been anticipated, it can delay completion or affect the structure of the deal, particularly where consent is not immediately forthcoming. 

Leases approaching expiry, or those containing significant repair or reinstatement obligations, can also influence how a buyer assesses value. These are contractual liabilities that transfer with the business and are often examined in detail once due diligence begins. 

Informal occupation arrangements, where there is no formal lease in place, are sometimes only addressed when a sale is being prepared. These situations will usually need to be regularised before a transaction can proceed, which can introduce additional steps into the process. 

Reviewing property contracts early, particularly where third-party consent is required, allows those timelines to be managed rather than becoming a constraint during negotiations. 

Technology, data and operational resilience 

Most businesses rely on a network of software platforms and digital services, each governed by its own contractual terms. These arrangements are now a standard area of focus during due diligence, but they are often not reviewed in detail until that point. 

One of the most common issues is that key systems are not held under contracts that can be transferred. Many software licences, particularly cloud-based or subscription services, are agreed on standard terms that restrict assignment or require provider consent if the business is sold. In some cases, accounts are set up in the name of an individual rather than the company, particularly in earlier stages of growth. These points are rarely visible day to day, but they tend to surface quickly once a buyer begins reviewing contract schedules. 

Where systems underpin core operations, uncertainty over whether they can continue post-completion becomes a practical concern. Buyers may need to pause the process while new arrangements are put in place or factor the cost and disruption of transition into their offer. 

Data protection introduces a further contractual layer. Businesses that rely on third-party providers to process personal data are required to have appropriate data processing agreements in place. These are often accepted as standard terms when services are first engaged and not revisited and are likely to vary depending on when they were introduced and the data protection legislation in place at the time the contract was entered into. During due diligence, gaps or inconsistencies in these arrangements can prompt more detailed enquiries, particularly where they suggest a lack of oversight. 

A focused review of key technology contracts, including how systems are licensed, who holds those agreements and whether appropriate data processing terms are in place, helps ensure that operational continuity is not brought into question during a transaction. 

Aligning shareholders and decision-making 

Where there is more than one owner, the contractual framework governing shareholder relationships becomes important. 

Buyers will want to see that all shareholders are aligned and that there are no provisions within shareholder agreements or constitutional documents that could delay or prevent the transaction. Pre-emption rights, consent requirements and other restrictions are sometimes only revisited once a sale is underway. 

Where expectations between shareholders have not been aligned in advance, issues can surface at a late stage. Differences around price, timing or future involvement can delay progress or complicate negotiations. 

Clarity in shareholder arrangements, supported by appropriate documentation, provides a more stable foundation for a transaction and reduces the risk of disruption once discussions are underway. 

Preparing early to protect value 

Across each of these areas, the issue is not usually whether a problem exists, but when it is identified. 

Where contractual gaps are discovered during due diligence, they are introduced into a live negotiation, often with limited time to resolve them. That can affect both process and outcome, leading to price adjustments, additional protections or delays to completion. 

In practice, the most effective starting point is to focus on the contracts that underpin revenue and operational continuity. Customer agreements, key supplier contracts and any arrangements involving intellectual property tend to have the most immediate impact on how a buyer assesses the business. 

Addressing these issues in advance allows them to be managed on your terms. It reduces the likelihood of disruption, strengthens your negotiating position and helps maintain momentum through the transaction. 

Even where a sale is not imminent, this level of contractual housekeeping is a practical step. Businesses with well-managed agreements tend to present more clearly to buyers and are less likely to encounter avoidable obstacles when a transaction begins. 

How we can help 

At Coodes, we work with business owners at every stage of the M&A process, from early preparation through to completion. Where contractual issues are identified early, there is usually a clear path to resolving them. 

If you are considering a sale, whether in the near term or further ahead, we can help you identify the contractual risks that matter, prioritise them effectively and support you through a well-managed transaction.