The Second Add-On Deal a Waterloo Family Rushed Past Their Lender

The situation

Vesna's message to our office came in on a Thursday evening and read, more or less, that the family's lender had just called their credit facility into question over an acquisition that had closed six weeks earlier. That was the moment she realized the shortcut the deal team had taken was not, in fact, a shortcut. The family, Vesna and her brother Ivan, along with their mother Rosa, held the founding shareholder stake in a Waterloo software platform company that a private equity sponsor had invested in two years earlier, with the sponsor now driving an aggressive add-on acquisition strategy to grow the platform through smaller acquisitions rather than organic growth alone.

This was the family's second add-on under the sponsor's ownership. The first, roughly eighteen months earlier, had gone through our office in full, including a careful review of the platform's existing credit facility to confirm what lender consent the add-on required before signing. That review had turned up a consent requirement the sponsor's deal team had initially missed, and getting it resolved before closing had added nearly three weeks to that first transaction, weeks the sponsor's principals had grumbled about at the time. On this second deal, in the $30 million to $50 million range and moving faster than the first, the sponsor's internal team decided the consent step could be handled after signing rather than before, treating it as a formality rather than a genuine condition, and Vesna, under pressure to keep pace with the sponsor's timeline and remembering how much the delay had irritated everyone the first time, did not push back.

Vesna had sat through the first deal's consent negotiation in enough detail to know, in theory, why it mattered. Our team had explained at the time that the credit facility's lender wanted advance notice of anything that changed the platform's overall risk profile, and that this was standard, not unusual, for a lender that had already extended significant credit to fund one acquisition. What she had not fully absorbed, until the lender's call came through six weeks after this second closing, was that the requirement did not become optional simply because everyone involved had lived through it once already and found it slow. Her mother Rosa, who held a smaller share of the family stake and left most of the deal mechanics to Vesna and Ivan, only learned about the missed consent step when Vesna called to explain why the lender wanted a meeting, and asked the question that stuck with Vesna afterward: if we knew about this the last time, why didn't anyone check this time.

Ivan's read on the situation, once the family compared notes, was that the sponsor's team had genuinely believed the consent process could be run in parallel with closing rather than before it, treating the eighteen-month-old delay as an artifact of an overly cautious first deal rather than a recurring requirement built into the credit facility itself. Nobody on the sponsor's side had acted with any intent to cut corners. The gap was simpler and more familiar than that: a step that had felt burdensome once got quietly deprioritized the second time, by people who assumed their own recollection of how deals like this usually go was a safe enough substitute for actually checking the document.

What the law actually said

A credit facility agreement typically restricts what the borrower can do without the lender's consent, and a covenant requiring consent before a material acquisition is standard, not unusual, particularly for a platform company that has already used the facility to fund one add-on. The consent requirement exists because the lender priced its facility based on the borrower's financial profile at a specific point, and a further acquisition, especially one adding debt or changing the consolidated group's risk profile, can shift that profile enough that the lender wants the chance to evaluate it before it happens, not after.

Proceeding with an add-on that requires lender consent, without first obtaining it, does not automatically void the transaction, but it does put the borrower in breach of the credit agreement the moment the acquisition closes. A lender that discovers this has real options: it can waive the breach, often in exchange for something, additional fees, tighter covenants going forward, or it can treat the breach as a default under the facility, which in a worst case allows the lender to accelerate the loan and demand immediate repayment. Whether a lender reacts mildly or aggressively often depends less on the legal technicality itself than on the lender's existing relationship with the borrower and how the borrower approaches the conversation once the gap is discovered. A borrower who comes to the lender proactively with a remediation plan is in a fundamentally different position than one the lender discovers has been operating in breach for weeks without saying anything.

There was also a timing dimension that made the family's exposure worse than it might first appear. The breach had existed, unaddressed, for six weeks by the time Vesna's team even learned the lender had noticed. During that entire window, the platform company was technically in default of its credit agreement without anyone actively managing that fact, meaning if the lender had chosen to escalate immediately rather than raise it informally first, the family would have had no remediation plan ready and no proactive narrative to offer, only a breach the lender had discovered on its own. Whether a lender chooses the informal, cooperative route or the aggressive one in that moment often turns on the existing relationship and on how quickly and honestly the borrower responds once the gap surfaces, which meant the six weeks of silence before the lender's call had already used up some of the goodwill a faster, self-reported disclosure would have preserved.

What we did

1. Confirmed the scope of the breach immediately. Our first step was reviewing the credit agreement against the closed transaction to establish precisely which consent provisions had been triggered and missed, rather than relying on the family's secondhand account of what the sponsor's team believed had happened. Getting this scoped correctly before anyone spoke to the lender meant we could describe the breach precisely rather than vaguely, which mattered for how seriously the lender would take the family's own account of what had gone wrong.
2. Advised against waiting for the lender to raise it further. Because the lender had already flagged the issue informally, we recommended the family, through the platform company, approach the lender proactively with a full explanation and a proposed remediation, rather than waiting to see whether the lender would escalate on its own timeline. Acting first, instead of reacting to whatever the lender did next, put the family in the stronger position of appearing to manage the problem rather than being managed by it.
3. Prepared a retroactive consent request with full supporting detail. We assembled the financial information the lender would have reviewed had consent been sought before closing, including the add-on's impact on the consolidated group's leverage and cash flow, to give the lender a genuine basis for granting consent after the fact rather than simply declaring a default. Presenting the same analysis the lender would have asked for up front made the retroactive request look like diligence rather than an afterthought.
4. Negotiated the terms of the lender's forbearance. The lender agreed not to declare a default, but only in exchange for a one-time fee and a modest tightening of a financial covenant in the credit agreement going forward, both of which we negotiated down from the lender's opening position before the family accepted them. Pushing back on the lender's first offer mattered because an unchallenged demand tends to become the final term.
5. Documented the episode clearly for the sponsor's principals. Because this was the second time the consent step had been skipped, we prepared a plain written summary for the sponsor and the family explaining exactly what the covenant required and what had gone wrong, not to assign blame but to remove any ambiguity about what needed to happen differently on the next add-on.
6. Built a standing pre-closing checklist for future acquisitions. To prevent a third occurrence, we set up a short, mandatory lender-consent review step that had to be confirmed complete before any future add-on could sign, rather than relying on someone remembering to raise it under time pressure. A written checklist tied to signing, rather than a verbal reminder relying on institutional memory, meant the requirement would survive staff turnover on both the family's side and the sponsor's deal team.
7. Assigned clear ownership of the checklist step. A checklist only works if someone is accountable for completing it. We had Vesna, rather than the sponsor's deal team, take ownership of confirming the lender-consent step on future add-ons, since the family, not the sponsor, bore the direct consequence of a missed step on this deal. Placing responsibility with the party that actually absorbs the cost of failure, rather than the party driving deal speed, gave the checklist a real chance of being followed under pressure.
8. Briefed the family separately from the sponsor on what the covenant tightening actually meant going forward. Because Rosa had limited visibility into the deal mechanics, we walked the family through, in plain terms, exactly what the new covenant restricted and how it would affect the platform's flexibility on any future borrowing, so the cost of this episode was fully understood rather than absorbed silently.

The outcome

The lender agreed to grant retroactive consent and did not declare a default, which meant the family kept the credit facility in place and avoided the far more serious consequence of an accelerated loan demand on a facility supporting tens of millions of dollars in outstanding debt. That was a real and significant result. It was not, however, a clean outcome. The one-time fee and the tightened covenant added an ongoing cost to the facility that would not have existed had consent been sought before closing the way it had been on the first add-on, and the platform company now operates under a somewhat less flexible credit agreement than it did before this deal.

Vesna was candid with our team afterward that the family had known, from the first deal, exactly what the consent requirement was and why it mattered, and had chosen to treat it as optional the second time because the first experience had made it feel like an obstacle rather than a genuine protection. The cost of that choice was not catastrophic, but it was real, measured in fees, a tighter facility, and a period of real uncertainty about whether the lender would cooperate at all.

What the family avoided was the worse version of this story, the one where the lender treats the breach as a serious relationship problem rather than a fixable one and moves to protect itself aggressively. That better outcome was not automatic. It came from approaching the lender first, with a full and honest account, rather than waiting to be caught mid-breach with no plan in hand.

Rosa's question, the one Vesna could not answer in the moment the lender first called, ended up being the thing that changed how the family operated going forward. Once the standing checklist was in place with Vesna named as its owner, the family treated lender consent as a fixed step in every future acquisition conversation with the sponsor, not something to be negotiated away under deadline pressure a third time. The sponsor's principals, for their part, stopped pushing back on the timeline the consent review added, having now seen directly what skipping it had cost the family in fees, covenant flexibility, and a genuinely uncomfortable few weeks with their lender.

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