An”anti-assignment” clause can be the death knell of any deal involving the sale or purchase of a manufacturing company. You might ask: what is an anti-assignment clause? Here is the typical language that is often buried at the end of many types of contracts, including those with your suppliers and customers:
Seller shall not assign any of its rights or interest in this Agreement without [Business Partner’s] prior written consent.
It appears simple enough. But, we have seen contracts that not only prevent the assignment of contracts to third parties, but also expressly prohibit consolidation, mergers or change of ownership without prior written consent.
Such provisions raise a host of questions such as: “Can a party withhold consent unreasonably?” The answer to that is it depends on the language of the contact. Some anti-assignment clauses expressly state that consent cannot be withheld unreasonably while others are silent on the issue. [Note: If you find yourself in the latter situation, we have developed arguments to help].
The other issue that arises is what type of conduct is unreasonable? Not surprisingly, your customers and suppliers may grant their consent only after obtaining economic concessions and/or re-negotiating the contract. Some courts have held that such conduct is inappropriate while others have allowed consent to be withheld if the business partner can show that it will be economically harmed or injured by the assignment.
How does this issue derail a deal? Simple – the party looking to buy or sell or change ownership seeks consent and cannot get it. If the contract at issue is a key driver for the deal, the whole acquisition can go up in smoke. For that reason, check your contracts and scrutinize anti-assignment clauses at the time of negotiation.