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About This Series: Top 5 Legal Due Diligence Findings in Dutch M&A Transactions
In the dynamic landscape of mergers and acquisitions (M&A) in the Netherlands, the legal due diligence investigation remains one of the most critical phases of any transaction. During this stage, information from the seller is thoroughly validated, potential risks are identified, and the deal value is ascertained or sometimes fundamentally reassessed. A comprehensive due diligence process not only safeguards the purchaser by identifying risks and shaping negotiation strategies, but also benefits the seller and the target company by clarifying obligations, identifying operational improvements and aligning expectations.
This article marks the first in a five-part series on the Top 5 Legal Due Diligence Findings in Dutch M&A Transactions. For this series, we performed an in-depth analysis of the due diligence reports of our recent Dutch M&A transactions and identified the Top 5 Legal Due Diligence Findings. Each article in the series explores one of these findings as well as related topics in detail.
Summary of the article: Change of Control Clauses in Dutch M&A Transactions
In this first article, we focus on change of control clauses – one of the most commonly underestimated aspects of contract due diligence. Change of control clauses can, at first glance, appear routine, but as transactions progress, they often emerge as critical risk points that can affect contractual relationships of the target company, its continuity and even the closing of a transaction. Understanding not just where these clauses appear, but how they influence leverage, timing and counterparties’ behaviour, is crucial for a smooth M&A process.
This article discusses the content and impact of the change of control clause under Dutch law and concludes with our top 5 tips for reviewing them.
What is a change of control clause?
A change of control clause is triggeredwhen a target company’s ownership or leadership undergoes a significant shift following a merger, acquisition or change in the governance structure of the target company. Upon such an event, specific rights and obligations may be triggered under the change of control clause. Typically, these clauses may grant a contract party (for instance, a customer, supplier, financier or landlord of the target company) the right to:
- be notified about the envisaged change of control over the target company;
- immediately, or under certain conditions, terminate, amend or renegotiate the underlying contract with the target company; or
- provide prior (written) consent, without which consent the underlying contract with the target company may be terminated.
In addition, a change of control clause often imposes an obligation on the target company to inform the relevant contract party or to obtain such party’s prior (written) consent in order to ensure continued performance of the underlying contract.
When reviewing contracts in connection with a due diligence investigation, the change of control clauses in key customer contracts are often flagged. At first glance, these clauses may seem like standard boilerplate, but in the context of an acquisition, they can translate into different kinds of transaction risks, such as potentially losing a key contract, having to renegotiate favourable terms, facing delays in closing or negatively impacting the target company’s post-acquisition value.
Impact of change of control clauses on Dutch M&A transactions
From both a purchaser’s and a seller’s perspective, the presence of change of control clauses in a target company’s commercial contracts can have a material impact on the course – and sometimes even the feasibility – of an M&A transaction. These clauses, which grant the target company’s counterparties rights triggered by changes in ownership or control, introduce an element of third-party dependency into a deal. If third-party consent is required, this can delay the transaction timeline.
Beyond timing, change of control provisions can also raise commercial and confidentiality considerations. In practice, neither party may wish to notify counterparties of the impending transaction, especially in a competitive market. This is also relevant where an underlying commercial relationship is strategically sensitive for the target company or dependent on personal trust between the management teams of the parties involved.
We will take a closer look at the implications of change of control clauses from (1) the target company’s, (2) the purchaser’s and (3) the seller’s perspective.
- Target company perspective
From a target company’s point of view, not receiving a third party’s consent to a transaction may not only affect the deal, but also the target company’s position in the market. Gaining such consent from the relevant third party is a balancing act, particularly if the target company’s business is strongly dependent on the commercial contract containing the change of control clause. Revealing a pending transaction may draw the contract party’s attention to contractual rights that could be leveraged by such party to exploit its contractual position, seek improved terms or perhaps reconsider the relationship in its entirety.
All this may have an enormous impact on the target company’s business and thus affect its value, even if the deal is not ultimately pursued. Addressing these issues therefore requires not only a robust legal strategy but also a thoughtful communication strategy with counterparties, which may involve early engagement to manage expectations and safeguard key relationships.
- Purchaser perspective
From a purchaser’s viewpoint, the stakes are particularly high when change of control clauses are found in key customer, supplier or licensing agreements. Business continuity risk arises if a critical counterparty exercises its change of control rights in the post-closing phase. This risk can extend beyond the purchaser and the target company itself, as the loss of a key contract may adversely affect the entire purchaser group, particularly when the acquisition is intended to strengthen the group as a whole.
Accordingly, during the due diligence review, the purchaser is advised to assess whether the relevant agreements are essential to the target company’s operations and, if so, raise these findings promptly with the seller. If the ongoing benefit of such a key contract depends on obtaining counterparty consent, the purchaser will often insist on making this a condition precedent to closing – ensuring that the transaction cannot be completed until the required consent has been secured. This protects the purchaser from acquiring a business that could immediately upon closing lose a key contract or a vital revenue stream.
- Seller perspective
For the seller, early awareness and proactive management of change of control clauses are equally important. Proactively identifying and addressing these clauses before entering into a sale process can prevent unpleasant surprises during the deal process and protect deal value.
A purchaser discovering a termination risk in a key contract may seek a price reduction, demand additional protections or even walk away from the deal. By contrast, a well-prepared seller who has already mitigated these risks – for example, by obtaining consents in advance or engaging counterparties to clarify their position – demonstrates control and transparency. This helps preserve momentum, maintain purchaser confidence and ultimately contributes to a smoother negotiation and transaction process.
Key takeaway: Change of control clauses are not merely technical provisions; they can directly influence valuation, transaction timing and deal certainty. Both purchasers and sellers benefit from identifying and addressing them early in the M&A process.
This article also serves as a call to attention for commercial contracting lawyers: while change of control clauses are generally considered boilerplate, it may be worthwhile to carefully negotiate their terms, particularly where a consent requirement is involved.
Top 5 tips: change of control clauses in Dutch M&A transactions
- Do not treat change of control clauses as standard boilerplate — assess each clause individually, including any potential legal and commercial consequences, in the context of the transaction, the target company, the sector it operates in and the parties’ position in that sector’s market.
- Prioritize key contracts — focus the legal due diligence review on revenue-generating, strategically important or operationally critical agreements, especially if the transaction is under time pressure.
- Balance confidentiality and timing — carefully plan when and how counterparties are informed to avoid confidentiality breaches and commercial disruptions.
- Consider conditions precedent — if consent from a key counterparty is required, include it as a condition precedent (opschortende voorwaarde) to closing.
- Prepare early — obtaining counterparty consent often takes longer than expected. Early identification and mitigation of change of control risks can improve deal certainty and outcome.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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