Third Party Consent Agreement
Third-party consents not only require time and effort, but also create risks and lower business value. The risk of third-party approval makes a transaction more risky for buyers and sellers because it cannot be obtained; there have been cases where transactions have not been concluded because a third-party agreement has not been guaranteed. Third-party consents can also reduce the value of a business if assets are sold. Since the sale is due to the agreement of a third party, control of the transaction shifts from the seller to the third party, as the stability of the revenue can be called into question. Because of this uncertainty, the third-party agreement is still a downward force in valuation. Keeping in mind the agreement of third parties during a process of M-A is a well-conducted practice by successful ATM practitioners. The termination of a last-minute task can result in an additional slowdown, a lower value, a higher risk and a possible remedy. Conversely, the early integration of awareness and the identification of third-party consents will later benefit buyers, sellers and consultants and may make the difference between how the agreement will be concluded and whether the deal will be concluded. Purpose: The third-party consent provision determines, if any, how transitional contractual relationships with third parties are handled. Some sectors work almost exclusively on the basis of formal contracts that prohibit orders, while others have few written agreements, if so. If the target entity is active in the first category, this provision is an important element of the agreement because of its impact on the value of the agreement to the buyer. If the target company is in an area where there are few written agreements and where leased real estate is not a problem, there is probably no need to formally discuss the issue of third-party consent. Seller preference: The seller has many ways to modify this provision to reduce his level of risk.
First, she wants to negotiate a level of effort that she is sure she can do, which is a little less than «the best reasonable efforts.» Instead of a general standard, it may prefer to define specific measures it must take to comply with this clause. Other options for controlling the risk represented by this provision include setting a deadline for obtaining authorizations and setting a cap on expenses resulting from the attempt to comply with this section. When obtaining third-party consents, the proven method of process management and precise planning for obtaining consents must be disciplined. If third-party agreements are detected at an early stage, there should be sufficient time to determine who is the decision maker of the approval, when to get in touch with them and what their concerns may be. Consents must be processed one after the other, with someone on your AM team entrusting the responsibility of initiating and overseeing approval progress.