A Cold Letter to a Retiring Owner Led to a Late Discovery

The situation

Five days before closing, in the middle of a long weekend, Deqa and Sagal sat down for a final read of the closing documents for the Innisfil business they were about to buy and found a clause nobody had flagged before. The company's largest customer contract, worth close to forty percent of annual revenue, required the customer's written consent before the business could change hands. The closing date sat in the middle of a holiday week. Deqa and Sagal had already given notice at their own jobs, and the financing their lender had arranged came with a rate lock that was due to expire two weeks later.

To understand how the deal got to that point, it helps to go back almost a year. Deqa, an architect, and Sagal, an actuary, had decided to buy a business rather than keep building careers inside firms they did not control. Their combined income put a business in the two million to five million dollar range within reach, but nothing on the public listing sites came close to what they wanted. Businesses in that range were either priced well above what their earnings supported, or belonged to owners who had let quality slip while they waited years for the right buyer to appear.

After months of disappointing tours, Deqa and Sagal changed their approach. Rather than wait for a business to be listed, they identified companies that looked like a fit and wrote to the owners directly, describing themselves plainly and asking whether the owner had ever considered selling. Most letters went unanswered. One did not. Sarah, who had built a specialty manufacturing business in Innisfil over nearly three decades, had been thinking about retirement for two years but had never taken the step of listing, worried that a for-sale sign would spook the handful of large customers her business depended on.

Sarah's reply led to a first meeting, then months of careful, informal conversation before either side involved lawyers. By the time a letter of intent was signed, both sides had a rough handshake on price, an earn-out structure that reflected Sarah's concern about a smooth transition, and a closing date chosen to align with the buyers' notice periods at their jobs and Sarah's own plans to spend the following winter away. What none of the three of them had checked closely enough, until that final document review, was what the company's own contracts said about what happened if the business changed hands.

What the documents showed

The clause itself was not unusual. Change-of-control provisions appear in a large share of commercial supply and service contracts, and they exist for a reasonable reason: a customer wants some say in who they end up doing business with, particularly when that supplier represents a meaningful share of their own operations. What made this one dangerous was its combination with timing. The contract said the customer's written consent was required before a sale of the business closed, and it gave the customer the right to terminate on notice if consent was refused or simply not given.

Sagal, reading through the schedule of material contracts a second time that weekend, noticed that the consent requirement had been buried in a renewal amendment signed three years earlier, long after the original agreement, and it had not carried the kind of plain flag that would have caught an earlier reviewer's eye. Sarah's own bookkeeper, who had helped assemble the data room, had not been asked to check for this kind of clause and would not have known to look for it. It was an honest gap, not a concealment, but it was a gap that put close to forty percent of the business's revenue at risk at the worst possible moment to discover it.

The practical problem was threefold. First, the customer's procurement department was closed for the same holiday week the closing was scheduled around, which meant no consent could realistically be obtained before the date already on the purchase agreement. Second, Deqa and Sagal's financing was tied to a rate lock with its own expiry, so simply pushing the closing date back by a month risked losing the mortgage-style commercial rate they had negotiated. Third, and most sensitive, raising the issue with the customer before the sale closed risked telegraphing that ownership was changing hands, the exact outcome Sarah had spent two years avoiding by not listing the business publicly.

There was also a harder question sitting underneath the practical ones. If the customer did eventually refuse consent, or simply let the contract lapse rather than actively agreeing to anything, the business Deqa and Sagal were buying would be worth meaningfully less than the one they had agreed to pay for. The purchase price had been set on the assumption that revenue continued roughly as it had for the past several years. A lost customer at that scale was not a rounding error; it changed the economics of the whole acquisition.

What we did

1. Paused the closing date rather than pushing through it. With the rate lock and the notice periods both creating pressure to close on the original date, the instinct was to find a way around the clause quietly. We advised against that, since closing without addressing a known consent requirement would have exposed Deqa and Sagal to the customer terminating after the sale, with no recourse against Sarah once the deal was already done. A short, deliberate delay carried far less risk than a fast one that ignored a real problem.
2. Went back to Sarah's side to establish who actually held the relationship. Sarah, not the buyers, had the existing rapport with the customer's procurement contact, built over years of reliable delivery. We recommended that Sarah make the first approach to the customer, framed as a planned transition rather than a sale in trouble, since a call from the long-standing owner read very differently than a call from an unfamiliar lawyer.
3. Drafted a holdback mechanism rather than relying on Sarah's promises alone. Given the risk that consent might not arrive in time, or at all, we structured a portion of the purchase price, roughly ten percent, to be held in escrow for ninety days after closing, released to Sarah only once the customer relationship had been confirmed to continue on substantially similar terms.
4. Negotiated a price adjustment tied to the outcome, not a flat discount. Rather than simply lowering the price to reflect the risk, we built in a formula: if the customer confirmed continuation, Sarah received the full holdback; if the customer's volume dropped materially within the first two quarters, the holdback reduced on a sliding scale tied to actual lost revenue, so both sides shared the risk rather than one side absorbing it entirely.
5. Requested a short, targeted extension from the lender. We worked with Deqa and Sagal to explain the situation to their lender directly rather than letting the rate lock simply lapse. The lender agreed to a three-week extension at the same locked rate once shown the holdback structure, satisfied that the buyers' position was protected rather than exposed.
6. Reviewed every other material contract for the same clause type. Once one buried consent requirement had turned up, we did not assume it was the only one. A full second pass of the remaining contracts turned up two more minor consent clauses, both with smaller customers, which Sarah was able to clear in advance without incident.
7. Closed on a revised date with the holdback in place. The closing moved back by just over two weeks, inside the lender's extended window, with the escrow structure and the adjusted price formula built into the final purchase agreement. Building the contingency into the agreement itself, rather than leaving it to a side letter or a verbal understanding, meant neither party could later dispute how a shortfall in the customer's volume was supposed to be handled once the deal had actually closed.

The outcome

The customer eventually gave consent, but not before the closing date had already passed. Sarah's call, followed up by a joint introduction of Deqa and Sagal as the new owners, took nearly six weeks to produce a signed acknowledgment, well past the original closing timeline and into the middle of the ninety-day holdback period. By the time it arrived, the customer had already shifted a modest portion of its orders to a second supplier as a precaution, a change it did not fully reverse even after consent was confirmed.

Under the formula built into the purchase agreement, that partial shift triggered a reduction in the holdback released to Sarah, reflecting roughly the revenue that did not come back. Sarah did not receive the full price she had originally expected, and Deqa and Sagal did not get the guaranteed customer relationship they had underwritten their financing around. Both outcomes were less than either side had hoped for going in, but both were outcomes each side could accept, because the risk had been shared according to a formula agreed before anyone knew how it would land, rather than fought over after the fact once feelings were already involved.

Deqa and Sagal closed on the business roughly six weeks later than planned, at a final price a little below the original agreed figure once the holdback adjustment was applied. The customer relationship continued, at a reduced but stable volume, and eighteen months later remained one of the company's top accounts, just no longer its single largest. Sarah, for her part, retired on schedule, with a settlement that was smaller than she had hoped but that reflected what had actually happened to the business rather than what everyone had assumed would happen when the letter of intent was first signed.

The lender extension turned out to matter almost as much as the holdback itself. Because Deqa and Sagal had disclosed the problem early rather than waiting to see whether it would resolve itself, their locked rate survived the delay intact, saving them a meaningful amount over the life of the loan compared with what a fresh rate would have cost at the time closing finally happened. Sarah, for her part, said afterward that she wished the original document review had been more thorough at the letter of intent stage, before either side had a firm number in mind, since a problem caught earlier tends to cost less than one caught during closing week.

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