by Michael Gravel | Apr 16, 2025 | iMerge M&A Dealmaker News
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Red Flags in Legal, IP, and Financial Due Diligence — And How to Address Them Proactively
In the world of software and technology M&A, due diligence is where deals are made—or quietly fall apart. For founders and CEOs preparing for an exit, understanding what buyers scrutinize in your legal, intellectual property (IP), and financial documentation is not just a defensive move—it’s a strategic one.
At iMerge, we’ve seen otherwise promising deals stall or collapse due to avoidable red flags. The good news? Most of these issues can be identified and resolved well before a buyer ever sees your data room. Below, we outline the most common red flags across legal, IP, and financial domains—and how to proactively mitigate them to preserve valuation and deal momentum.
1. Legal Red Flags: Contracts, Compliance, and Corporate Structure
Common Issues
- Unclear ownership of equity or cap table discrepancies
- Missing or poorly drafted customer, vendor, or employment agreements
- Non-compliance with data privacy laws (e.g., GDPR, CCPA)
- Pending or threatened litigation
- Improper entity formation or foreign subsidiary issues
Proactive Solutions
- Clean up your cap table: Ensure all equity grants, SAFEs, convertible notes, and option pools are properly documented and reconciled. If you’ve had multiple rounds of financing, consider a third-party cap table audit.
- Standardize contracts: Use consistent, lawyer-reviewed templates for customer and vendor agreements. Ensure all key contracts are signed, stored, and easily accessible.
- Review compliance posture: Conduct a privacy and compliance audit, especially if you handle user data. Buyers will expect clear policies and evidence of adherence to applicable regulations.
- Resolve legal disputes early: Even minor litigation can spook buyers. If possible, settle or disclose any legal matters with clarity and documentation.
As we noted in Completing Due Diligence Before the LOI, addressing these issues early can significantly reduce friction during the negotiation phase and increase buyer confidence.
2. Intellectual Property Red Flags: Ownership, Protection, and Infringement Risk
Common Issues
- Unclear IP ownership—especially from contractors or former employees
- Open-source software usage without proper licensing documentation
- Missing or expired trademarks, patents, or domain registrations
- Inadequate IP assignment agreements
Proactive Solutions
- Audit IP ownership: Confirm that all code, content, and inventions are owned by the company—not by freelancers, founders, or third parties. Ensure all contributors have signed IP assignment agreements.
- Document open-source usage: Maintain a clear inventory of open-source components and their licenses. Buyers will want to know you’re not exposed to copyleft risks (e.g., GPL).
- Register and renew IP assets: Ensure trademarks, patents, and domains are registered in the company’s name and are current. This is especially critical for SaaS and consumer-facing platforms.
Buyers often ask, “How do I protect my IP during buyer due diligence?” (source). The answer starts with having clean, well-documented IP ownership and usage policies in place long before diligence begins.
3. Financial Red Flags: Quality of Earnings, Revenue Recognition, and Accounting Practices
Common Issues
- Inconsistent or non-GAAP financials
- Improper revenue recognition—especially for SaaS or subscription models
- Deferred revenue not properly accounted for
- Unexplained fluctuations in margins or customer churn
- Commingled personal and business expenses
Proactive Solutions
- Prepare GAAP-compliant financials: Even if you’re not required to, aligning your financials with GAAP standards signals maturity. Consider a Quality of Earnings (QoE) report to validate your numbers.
- Clarify revenue recognition policies: SaaS companies should clearly define how and when revenue is recognized. Misalignment here can lead to valuation haircuts or earn-out structures.
- Separate personal and business expenses: Clean books are essential. If you’ve run personal expenses through the business, normalize them and be transparent in your financial disclosures.
- Track key SaaS metrics: Buyers will scrutinize metrics like ARR, MRR, CAC, LTV, and churn. Ensure your data is accurate and benchmarked. For more, see SaaS Key Performance Metrics and Valuation Multiples.
Financial red flags are among the most damaging because they directly impact valuation. As we’ve discussed in Website Valuation and Discretionary Earnings, buyers will discount for risk—and unclear financials are a major source of it.
4. Cultural and Operational Red Flags: The Intangibles That Matter
While not always documented, buyers increasingly assess cultural and operational fit. Red flags here include:
- Key person risk: If the business is overly reliant on a founder or CTO without a succession plan
- High employee turnover or poor Glassdoor reviews
- Inconsistent internal reporting or lack of KPIs
These issues can be addressed by building a strong second layer of leadership, documenting processes, and fostering a transparent, data-driven culture. Buyers want to see that the business can scale—and survive—without its founders at the helm.
Final Thoughts: Preparation Is the Best Defense
Red flags don’t always kill deals—but they do slow them down, reduce leverage, and often lead to price adjustments or unfavorable terms. The most successful exits we’ve advised at iMerge are those where founders took the time to anticipate buyer concerns and address them proactively.
Whether you’re 12 months from a sale or just beginning to explore your options, a pre-diligence audit across legal, IP, and financial areas is a smart investment. It not only protects value—it creates it.
Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.
by Michael Gravel | Apr 15, 2025 | iMerge M&A Dealmaker News
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Overlooked Intellectual Property Pitfalls That Can Derail Your Acquisition — And How to Fix Them Now
In the final stages of a software company acquisition, few things can unravel a deal faster than unresolved intellectual property (IP) issues. Yet, many founders and CEOs underestimate just how central IP clarity is to valuation, buyer confidence, and deal execution. Whether you’re preparing for a strategic exit or simply want to be acquisition-ready, identifying and resolving IP pitfalls early can mean the difference between a smooth close and a stalled—or failed—transaction.
This article outlines the most common IP-related risks that surface during M&A due diligence, how to spot them before buyers do, and what steps you can take now to mitigate them.
Why IP Matters So Much in Tech M&A
For software and SaaS companies, intellectual property is often the core asset being acquired. Buyers—especially strategic acquirers and private equity firms—are not just purchasing code; they’re acquiring the legal rights to use, commercialize, and defend that code. If those rights are unclear, encumbered, or disputed, the entire deal can be jeopardized.
As we’ve seen in numerous transactions at iMerge Advisors, even well-run companies can overlook critical IP hygiene. These issues often don’t surface until due diligence, when the buyer’s legal team begins combing through ownership records, license agreements, and employee contracts.
Common IP Pitfalls That Can Derail a Deal
1. Unclear Ownership of Code and IP
One of the most frequent—and most damaging—issues is when a company cannot clearly demonstrate that it owns all of its core IP. This often stems from:
- Founders or early developers who never signed IP assignment agreements
- Freelancers or contractors who retain rights to code they wrote
- Open-source components used without proper attribution or licensing
Buyers will want to see airtight documentation proving that all IP has been properly assigned to the company. If any ambiguity exists, it can trigger delays, indemnity demands, or even deal termination.
2. Improper Use of Open-Source Software
Open-source software (OSS) is ubiquitous in modern development, but not all OSS licenses are created equal. Some, like the GNU General Public License (GPL), require that derivative works also be open-sourced—something most acquirers want to avoid.
Failure to track OSS usage or comply with license terms can lead to legal exposure. Buyers will often run automated scans to detect OSS components and flag any problematic licenses.
3. Inadequate IP Protection Strategy
While not every software company needs a patent portfolio, a lack of trademarks, trade secret protocols, or copyright registrations can raise red flags. Buyers want to see that you’ve taken reasonable steps to protect your IP from infringement or misappropriation.
For example, if your brand is central to your go-to-market strategy, but your trademark is unregistered or contested, that could materially impact perceived value.
4. IP Encumbrances from Third-Party Agreements
Licensing agreements, joint ventures, or customer contracts may contain clauses that limit your ability to transfer IP or require third-party consent. These “change of control” provisions can delay or block a transaction if not addressed early.
Similarly, revenue-sharing or white-label agreements may give third parties partial rights to your IP, which can complicate valuation and post-acquisition integration.
5. Employee and Contractor Agreement Gaps
In the rush to scale, many startups neglect to update employment agreements or fail to include robust IP assignment clauses. This is especially risky with remote teams, international hires, or outsourced development firms.
Without clear, signed agreements assigning all work product to the company, you may not legally own the code your business depends on.
How to Spot and Fix IP Issues Before Buyers Do
1. Conduct an Internal IP Audit
Start by cataloging all your IP assets—source code, trademarks, domain names, proprietary algorithms, customer data models, etc.—and map out who created them and under what terms. Review all employment, contractor, and vendor agreements to confirm IP assignment clauses are in place and enforceable.
Firms like iMerge often recommend this step early in the exit planning process to avoid surprises during diligence.
2. Clean Up Contractor and Employee Agreements
Ensure every current and former employee, contractor, and advisor has signed a valid IP assignment agreement. If gaps exist, work with legal counsel to obtain retroactive assignments or waivers. This is especially important for co-founders or early developers who may have left the company.
3. Review Open-Source Usage
Use tools like FOSSA, Black Duck, or WhiteSource to scan your codebase for open-source components and license types. Flag any copyleft licenses (e.g., GPL, AGPL) and consult legal counsel on remediation strategies, which may include code rewrites or license substitutions.
4. Register Key IP Assets
Where appropriate, register your trademarks, copyrights, and domain names. While not always required, registration strengthens your legal position and signals to buyers that your IP is well-managed.
5. Review Third-Party Agreements for Transfer Restrictions
Identify any contracts that include IP-related restrictions, such as non-transferability, exclusivity, or change-of-control clauses. These should be flagged early and, if possible, renegotiated or disclosed upfront in the deal process.
6. Prepare for Buyer Due Diligence
As part of your M&A readiness, assemble a clean, well-organized IP folder in your data room. This should include:
- IP assignment agreements
- Open-source license disclosures
- Trademark and copyright registrations
- Third-party license agreements
- Documentation of internal IP policies
For a broader checklist, see our guide on Due Diligence Checklist for Software (SaaS) Companies.
IP Hygiene as a Value Driver
Beyond risk mitigation, clean IP ownership and documentation can actually increase your company’s valuation. Buyers are willing to pay a premium for businesses with defensible, transferable, and well-documented IP. Conversely, unresolved IP issues often lead to price reductions, escrow holdbacks, or earn-out structures to offset perceived risk.
In our experience at iMerge, companies that proactively address IP issues before going to market tend to command stronger offers and close faster. It’s not just about avoiding red flags—it’s about presenting a business that’s ready to scale under new ownership.
Conclusion
Intellectual property is the foundation of value in most software M&A deals. Overlooking even minor IP issues can create major friction during due diligence, delay your timeline, or reduce your exit value. By conducting a thorough IP audit, cleaning up documentation, and proactively addressing risks, you can position your company for a smoother, more lucrative transaction.
Use this insight in your next board discussion or strategic planning session. When you’re ready, iMerge is available for private, advisor-level conversations.
by Michael Gravel | Apr 15, 2025 | iMerge M&A Dealmaker News
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What Tax and Legal Paperwork Should You Expect After Selling Your Company?
For many founders, the sale of a company is the culmination of years—sometimes decades—of work. But while the wire transfer may signal the end of one chapter, the post-closing period often brings a new set of responsibilities, particularly around tax filings, legal compliance, and deal mechanics like escrow and earn-outs. Understanding what lies ahead can help you avoid costly surprises and ensure a clean transition.
This article outlines the key tax and legal documents you should be prepared to manage after selling your software or technology business, with a focus on the months following the transaction close.
1. Final Tax Filings and Capital Gains Reporting
One of the most immediate post-sale obligations is reporting the transaction to the IRS and your state tax authority. The nature of your tax filings will depend on how the deal was structured—whether it was an asset sale or a stock sale—and your entity type (C-corp, S-corp, LLC, etc.).
- Capital Gains Tax: If you sold equity, the gain is typically taxed as a long-term capital gain (assuming you held the shares for more than a year). For federal purposes, this is currently taxed at up to 20%, plus the 3.8% Net Investment Income Tax for high earners.
- Form 8949 and Schedule D: These IRS forms are used to report the sale of capital assets. You’ll need to provide details such as the date of acquisition, date of sale, cost basis, and proceeds.
- State Taxes: Some states, like California and New York, impose their own capital gains taxes. Be sure to consult a tax advisor familiar with your jurisdiction.
For more on how tax law changes may affect your sale, see Tax Law Changes and the Impact on Personal Taxes from Selling a Software Company.
2. Escrow Releases and Contingent Consideration
Most M&A deals include an escrow holdback—typically 10% to 15% of the purchase price—to cover post-closing indemnification claims. These funds are usually held for 12 to 24 months and released in tranches, assuming no claims are made.
After closing, you’ll need to:
- Track the escrow release schedule and ensure you receive timely disbursements.
- Respond to any buyer claims that may affect the release of funds.
- Coordinate with your legal counsel to resolve disputes, if any arise.
Escrow releases are not always straightforward. For example, if the buyer alleges a breach of representation or warranty, they may file a claim against the escrow. This is where having a well-negotiated reps and warranties section in your purchase agreement becomes critical.
3. Earn-Out Agreements and Performance-Based Payouts
Earn-outs—where a portion of the purchase price is contingent on future performance—are common in software and SaaS transactions, especially when valuation gaps exist. These agreements can span 12 to 36 months and are often tied to revenue, EBITDA, or customer retention metrics.
Post-sale, you’ll need to:
- Monitor performance metrics and ensure accurate reporting to the buyer.
- Review earn-out calculations and dispute resolution mechanisms.
- Stay involved operationally (if required) to influence outcomes.
As we discussed in How Do I Handle Earn-Outs in the Sale of My Software Business?, clarity in the earn-out structure and post-closing governance is essential to avoid misalignment or litigation.
4. Allocation of Purchase Price and IRS Form 8594
In asset sales, the buyer and seller must agree on how the purchase price is allocated across various asset classes (e.g., tangible assets, goodwill, IP). This allocation affects the tax treatment for both parties and must be reported on IRS Form 8594.
Disagreements over allocation can lead to audits or penalties. That’s why firms like iMerge work closely with both parties to ensure alignment and defensibility in the allocation schedule. For more, see Mergers & Acquisitions: Allocation of Purchase Price Disagreements.
5. Legal Compliance and Post-Closing Covenants
Beyond taxes, sellers often have ongoing legal obligations after closing. These may include:
- Non-compete and non-solicitation agreements: Ensure you understand the scope and duration of any restrictive covenants.
- Transition services agreements (TSAs): If you’ve agreed to provide operational support post-close, these obligations must be fulfilled as outlined.
- IP assignments and consents: Some intellectual property transfers may require additional filings or third-party approvals post-closing.
Failure to comply with these covenants can trigger indemnification claims or clawbacks, so it’s important to stay organized and proactive.
6. Recordkeeping and Audit Preparedness
Even after the deal closes, you should retain all transaction-related documents for at least seven years. This includes:
- Final purchase agreement and all exhibits
- Tax filings and allocation schedules
- Escrow and earn-out documentation
- Board and shareholder approvals
In the event of an IRS audit or buyer dispute, having a well-organized archive can save time, money, and legal exposure.
7. Personal Financial Planning and Estate Considerations
Finally, a liquidity event of this magnitude often triggers a need for personal financial planning. You may want to:
- Establish or update trusts and estate plans
- Explore charitable giving strategies (e.g., donor-advised funds)
- Rebalance your investment portfolio to reflect new risk tolerances
Many founders underestimate the complexity of post-sale wealth management. Engaging a tax advisor and estate attorney early can help you preserve and grow your proceeds efficiently.
Conclusion
Selling your company is a major milestone—but it’s not the end of the story. From tax filings and escrow releases to earn-out tracking and legal compliance, the post-closing period requires careful attention and strategic foresight.
Firms like iMerge specialize in helping software and technology founders navigate these complexities, not just during the transaction, but in the months and years that follow. Whether you’re preparing for an exit or managing the aftermath of a recent sale, having the right advisors in your corner can make all the difference.
Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.
by Michael Gravel | Apr 15, 2025 | iMerge M&A Dealmaker News
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Last-Minute Deal Dynamics: What to Expect Before Closing an Acquisition
For founders and CEOs navigating the final stretch of an M&A transaction, the days leading up to closing can feel deceptively quiet—until they’re not. Even after months of diligence, negotiation, and documentation, the final 5% of the deal often requires 50% of the effort. Why? Because this is when the most sensitive, high-stakes issues surface—issues that can materially impact your economics, your risk exposure, and your post-close obligations.
At iMerge, we’ve advised on hundreds of software and technology transactions, and we’ve seen firsthand how last-minute negotiations can either derail a deal or solidify a successful exit. This article outlines the most common late-stage issues sellers should anticipate, and how to prepare for them strategically.
1. Purchase Price Adjustments: The Working Capital Tug-of-War
One of the most common—and contentious—closing table negotiations involves net working capital (NWC) adjustments. While the headline purchase price may be fixed in the LOI, the final amount paid at closing is often adjusted based on a target level of working capital agreed upon during diligence.
Buyers want to ensure the business has enough short-term assets (like receivables and cash) to operate post-close without an immediate capital injection. Sellers, on the other hand, want to avoid leaving excess value on the table.
Key considerations include:
- Defining “working capital”: Exclude cash? Include deferred revenue? These definitions must be precise.
- Setting the target: Is it based on a 12-month average, trailing 3 months, or a seasonal adjustment?
- Post-close true-up: Most deals include a 60–90 day window for final reconciliation, which can lead to clawbacks or additional payments.
As we noted in Mergers & Acquisitions: Allocation of Purchase Price Disagreements, even small differences in accounting treatment can lead to six-figure swings in value. Sellers should work with their advisors to model multiple scenarios and negotiate clear definitions upfront.
2. Escrow Holdbacks: Protecting the Buyer, Exposing the Seller
Escrow provisions are another common flashpoint. Buyers typically require a portion of the purchase price—often 5% to 15%—to be held in escrow for 12 to 24 months to cover potential breaches of reps and warranties.
Late-stage negotiations often focus on:
- Escrow size and duration: Can it be reduced with a clean diligence report or rep & warranty insurance?
- Survival periods: How long do specific reps (e.g., tax, IP) survive post-close?
- Cap and basket thresholds: What’s the minimum claim size (basket) and maximum exposure (cap)?
In software deals, IP-related reps often carry longer survival periods and higher exposure caps. Sellers should be prepared to justify the strength of their IP portfolio and consider whether reps and warranties insurance can help reduce escrow requirements.
3. Intellectual Property Representations: The Devil in the (Codebase) Details
For technology companies, IP is the crown jewel—and the most scrutinized asset. Buyers will require strong representations that the company owns or has valid licenses to all IP used in the business, and that no third party has claims against it.
Late-stage IP issues that can delay or derail closing include:
- Open-source software usage: Improper use of GPL or other restrictive licenses can trigger indemnity concerns.
- Employee and contractor IP assignments: Missing or outdated agreements can raise ownership questions.
- Third-party claims or litigation: Even minor disputes can spook acquirers if not disclosed early.
As we outlined in Due Diligence Checklist for Software (SaaS) Companies, sellers should conduct an internal IP audit well before going to market. Waiting until the buyer’s counsel raises red flags can lead to rushed fixes—or worse, price reductions.
4. Deferred Revenue and Revenue Recognition
In SaaS and subscription-based businesses, deferred revenue is a common source of confusion. Buyers want to ensure they’re not paying for services they’ll have to deliver post-close without receiving the associated cash flow.
Key negotiation points include:
- How deferred revenue is treated in working capital
- Whether it reduces the purchase price or is excluded from NWC
- How revenue recognition policies align with GAAP or buyer standards
Misalignment here can lead to double-counting or undercounting revenue, which may trigger last-minute valuation disputes. Sellers should proactively model deferred revenue impacts and align with the buyer’s accounting team early in the process.
5. Employment Agreements and Key Person Risk
Buyers often require new employment or consulting agreements with founders and key team members. These agreements can become sticking points if compensation, non-competes, or equity rollover terms are not aligned with expectations.
In founder-led businesses, key person risk is a major concern. If the buyer perceives that the business cannot operate without the founder’s involvement, they may insist on:
- Longer earn-out periods tied to performance
- Retention bonuses or equity incentives
- Stricter non-compete and non-solicit clauses
As we discussed in What is the Role of a Buy-Side Advisor in Acquiring a Tech Company?, buyers are increasingly focused on post-close integration and continuity. Sellers should prepare their leadership team for these discussions and align incentives early.
6. Final Legal and Tax Structuring
Even after the deal is “done,” legal and tax structuring can introduce last-minute complexity. Common issues include:
- Asset vs. stock sale elections
- Section 338(h)(10) elections for tax treatment
- State and local tax exposure uncovered during final diligence
These decisions can materially impact the seller’s after-tax proceeds. As we noted in Tax Law Changes and the Impact on Personal Taxes from Selling a Software Company, early coordination between legal, tax, and M&A advisors is essential to avoid surprises at the finish line.
Conclusion: Expect the Unexpected—But Prepare Intelligently
Closing an acquisition is not just about signing documents—it’s about aligning risk, value, and expectations between two parties with different incentives. The final days of a deal are where those differences are most acutely felt.
Founders who anticipate these last-minute issues—working capital adjustments, escrow negotiations, IP reps, deferred revenue treatment, and employment terms—are better positioned to protect their economics and close with confidence.
Firms like iMerge specialize in helping software and technology founders navigate these complexities. From exit planning strategy to final deal structuring, our team brings the experience and foresight needed to avoid costly surprises.
Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.
by Michael Gravel | Apr 15, 2025 | iMerge M&A Dealmaker News
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What to Tell Key Customers and Partners About a Potential Acquisition
When a potential acquisition is on the horizon, one of the most delicate and strategically important conversations you’ll have is with your key customers and partners. These stakeholders often hold the power to influence the success—or failure—of a transaction, especially when their consent is required for contract assignments or when their continued loyalty is critical to the deal’s valuation.
Handled well, these conversations can reinforce trust, preserve enterprise value, and even accelerate post-close integration. Mishandled, they can trigger uncertainty, churn, or even derail the deal entirely.
This article outlines how to approach these discussions with clarity, confidence, and strategic foresight—drawing on lessons from successful software and technology M&A transactions.
Why These Conversations Matter
In many SaaS and enterprise software deals, customer contracts include anti-assignment clauses. These provisions require the customer’s consent before the contract can be transferred to a new owner. Even when consent isn’t legally required, customers may sense change is coming—especially if they notice shifts in service, personnel, or communication patterns.
From a buyer’s perspective, customer retention is a key driver of valuation. As we’ve discussed in SaaS Key Performance Metrics (KPIs) and Valuation Multiples, metrics like net revenue retention (NRR) and churn directly impact deal multiples. If a top customer gets spooked and walks, it can materially affect the purchase price—or even trigger a renegotiation of terms.
When to Communicate
Timing is everything. Premature disclosure can create unnecessary risk, while waiting too long can erode trust. A good rule of thumb: initiate conversations with key customers and partners after signing the Letter of Intent (LOI), but before finalizing the purchase agreement—especially if their consent is required.
At this stage, the deal is sufficiently advanced to justify the conversation, but still flexible enough to address any concerns that arise. In some cases, buyers may even request that customer consents be secured as a condition to closing.
What to Say: A Strategic Messaging Framework
Here’s a framework we often use at iMerge when advising software founders on customer communications during M&A:
1. Lead with Stability and Continuity
- Reassure customers that the acquisition will not disrupt their service, support, or pricing.
- Emphasize that the acquiring company values the relationship and is committed to continuity.
- Where possible, highlight that the same team will continue to support them post-close.
2. Frame the Acquisition as a Value-Add
- Position the transaction as a strategic move that will enhance the product roadmap, support capabilities, or geographic reach.
- For example: “This partnership will allow us to accelerate feature development and expand our support hours globally.”
3. Be Transparent—But Measured
- Share enough to build trust, but avoid over-disclosing sensitive deal terms or timelines.
- Stick to what’s relevant to the customer: how the deal affects their experience, contract, and long-term relationship.
4. Invite Dialogue
- Encourage questions and feedback. This signals respect and helps surface concerns early.
- Assign a point person—ideally someone with an existing relationship—to handle follow-ups.
5. Secure Consent Thoughtfully
- If consent is required, present the request in a way that reinforces mutual benefit and minimizes legal friction.
- Use plain language and offer to walk through the document with them if needed.
Case Example: A Mid-Market SaaS Exit
Consider a $25M ARR vertical SaaS company preparing for acquisition by a private equity-backed platform. Several of its top 10 customers had non-assignable contracts. Rather than wait until the final days of diligence, the CEO—guided by iMerge—scheduled one-on-one calls with each customer shortly after LOI signing.
He framed the acquisition as a growth catalyst, emphasized that their account managers and SLAs would remain unchanged, and offered early access to new features being developed post-close. All customers signed consent letters within two weeks, and the buyer cited this proactive engagement as a key reason for maintaining the original valuation.
What Not to Do
Equally important is knowing what to avoid:
- Don’t surprise them. Customers who hear about the deal through the press or a competitor may feel blindsided.
- Don’t overpromise. Avoid making commitments you can’t guarantee post-close, especially around pricing or roadmap items.
- Don’t delegate too low. These conversations should come from the CEO or a senior executive—not a junior account manager.
Legal and Structural Considerations
From a legal standpoint, the structure of the deal—asset sale vs. stock sale—can influence whether customer consent is required. As we explain in Asset versus Stock Sale, asset sales typically require more third-party consents, while stock sales may allow contracts to remain intact.
Understanding these nuances early can help you plan the right communication strategy and avoid last-minute surprises.
Final Thoughts
Customer and partner communications during an M&A process are not just a legal formality—they’re a strategic lever. When handled with care, they can preserve trust, protect valuation, and pave the way for a smooth transition.
Firms like iMerge specialize in guiding founders through these critical conversations, ensuring that messaging aligns with deal strategy and stakeholder expectations. Whether you’re navigating a strategic exit or preparing for growth capital, proactive communication with your ecosystem is a hallmark of a well-run process.
Founders navigating valuation or deal structuring decisions can benefit from iMerge’s experience in software and tech exits — reach out for guidance tailored to your situation.
