Chasing Customer Consents Before a Kanata Tech Deal Closed

The situation

Kasia led portfolio operations for a private equity fund that had spent two years building a managed IT and cybersecurity services group through acquisitions across Eastern Ontario. Before she moved into finance, Kasia had spent nine years as an elementary school teacher, and she still ran due diligence checklists the way she once ran a classroom: nothing got skipped because it seemed obvious. The fund's latest target was a well-regarded managed services company based in Kanata, serving government contractors and mid-size technology firms with network security, help desk, and compliance monitoring work.

The target's founder, Kiran, had built the business over sixteen years and was ready to step back. The deal on the table was an asset-heavy acquisition structured around an enterprise value of roughly $22 million, based on a purchase price multiple applied to the company's trailing adjusted earnings of about $3.2 million. Manpreet, the fund's associate on the deal, had spent several years as a court clerk before moving into private equity, and it was Manpreet who first flagged something that made the whole valuation model shake: the company's two largest customers together accounted for close to 60 percent of revenue, and both relationships ran on multi-year service agreements that were coming up for review in the due diligence file.

What the review found

Our firm was retained to run buy-side legal due diligence on the transaction, with a particular mandate to stress-test customer concentration risk once Manpreet raised it. A close read of the two anchor contracts turned up a standard but easily missed provision: each agreement barred the target from assigning the contract, or from undergoing a change of control, without the customer's prior written consent. One contract defined change of control broadly enough to capture an acquisition of substantially all of the company's assets, which was exactly the structure the buyer had proposed. The other tied consent to any transaction that changed who held a controlling interest in the business.

This kind of clause exists to give a customer some say over who ends up managing a relationship they depend on — a government contractor, in particular, often wants assurance that the vendor handling its network security has not quietly become a different, unvetted company overnight. Left unaddressed, the clause meant that closing the deal without consent could give either customer grounds to terminate its contract, regardless of how the transaction was otherwise structured. That risk was not theoretical for this deal. Losing either customer would have cut adjusted earnings by roughly $1.1 million to $1.6 million a year, which under the fund's financing terms would have pushed the acquired business close to breaching a covenant on its new acquisition debt within the first year of ownership.

Compounding the problem, the purchase agreement as first drafted said nothing about consent as a condition of closing. It treated the customer contracts as ordinary assets simply flowing through to the buyer at closing, with no representation from Kiran's company that consent had been sought, let alone obtained.

What we did

1. Mapped every material contract for assignment and change-of-control language. Beyond the two anchor customers, the review covered the company's supplier agreements, its office lease, and its equipment financing arrangements, since any of these can carry similar consent triggers that go unnoticed when attention is fixed on the customer side.
2. Rewrote the purchase agreement to make consent a closing condition. Rather than leaving the customer relationships to chance, the agreement was amended so that written consent from both anchor customers, in a form acceptable to the buyer, became a condition the seller had to satisfy before the buyer was obligated to close. This shifted the practical burden of chasing the consents onto Kiran's company, which had the existing relationships to do it credibly.
3. Built a consent timeline into the transaction schedule. Working backward from the target closing date, the team set interim deadlines for drafting consent letters, sending them to each customer's contracting officer, and following up, so the consent process ran in parallel with the rest of closing preparation instead of becoming a last-minute scramble.
4. Advised on how the request was framed. Government and enterprise customers are often more comfortable consenting when they understand who is actually taking over — not just that ownership is changing. Kiran's team, briefed with input from the fund, positioned the acquisition as continuity of service under a stronger financial backer, with the same account managers and technical staff staying in place.
5. Negotiated a fallback if one consent did not arrive in time. The agreement was structured so that if one customer's consent was delayed but not refused, the parties could close with a short holdback of a portion of the purchase price, released once the consent came through, rather than letting one slow-moving customer stall the whole transaction indefinitely.

The outcome

Both anchor customers ultimately consented. The smaller of the two responded within about three weeks with no objections once its contracting officer understood the buyer's track record with similar government-adjacent clients. The larger customer, a technology firm with its own internal approval process, took closer to six weeks and asked for one addition: written confirmation that the same technical lead who had run its account for years would continue in that role after closing. That was a request the fund could make in good faith, since retaining key staff had been part of its plan from the start, and it was documented as a side letter rather than reopened in the main agreement.

The transaction closed on the revised timeline at the full $22 million enterprise value, with no reduction in purchase price and no holdback needed, since both consents arrived before the closing date. The fund took over a business whose two largest customer relationships were confirmed in writing rather than assumed, and Kasia's integration team was able to start its first ninety days focused on operations rather than firefighting a customer who felt blindsided by a change of ownership they had not agreed to.

Kiran, for his part, closed the sale of the company he had built without a customer relationship souring at the worst possible moment — the kind of outcome that depends less on the purchase price and more on whether the mechanics behind it were handled carefully. Manpreet later said the habit of reading a contract the way she once reviewed court filings, line by line, without assuming a clause was boilerplate, was what caught the issue in the first place. Kasia's fund carried the same approach into its next two acquisitions, adding a customer-contract review with a standing checklist item for assignment and change-of-control language before any letter of intent went out, rather than waiting until due diligence was already underway to discover what a target's key contracts actually said.

The wider lesson for the fund was as much about timing as substance. Had the consent requirement surfaced during the final week before closing, instead of during the diligence phase months earlier, there would have been little room to negotiate anything beyond a rushed request under pressure, with the seller's leverage diminished and the customers aware a deadline was forcing the buyer's hand. Finding the clauses early meant the requests could be made calmly, with enough time for a customer's internal approval process to run its normal course, and enough time to build a fallback into the purchase agreement in case either customer said no. None of that would have been possible if the review had treated the customer contracts as a formality to confirm rather than a set of obligations to actually read.

What you can learn from this