M&A Information Technology Best Practices

Chapter 13

Third-Party Contracts in M&A

Identifying and Managing Common Implications

Christine McKayJoseph JoyRamkumar JayaramanNinad Deshmukh

Your suppliers, information technology (IT) and non-IT alike, control the fate of your deal far more than you may expect. They may even have the power to stop it.

Whether infrastructure or application, your IT suppliers own some or all of what you bought from them. You simply have a license to use it, and many licenses deny users the rights needed to support a deal such as assignment or transition services rights. Non-IT suppliers, especially those providing outsourced services such as contract manufacturing, property management, and the like, may also restrict your rights during a transaction.

Though we often understand how critical these suppliers are to maintaining business continuity, few buyers or sellers have fully considered their potential impacts on operations and cost. Suppliers, on the other hand, understand their power during these times. Therefore, they will seek to leverage the importance of business continuity in various ways. They may threaten to discontinue service on Day 1. They may attempt to charge exorbitant fees for granting assignment or transition rights or to assess punitive termination penalties. For IT, they may require both the buyer and the seller to upgrade to newer versions or buy additional licenses or products. Products previously taken off maintenance may need to have it reinstated, and some IT suppliers ...