Contracts Are a Treasure Trove of Risk
When conducting due diligence, financial statements and projections often steal the spotlight.
But the real time bombs?
They're often buried in the contracts.
Commercial agreements, shareholder documents, and loan covenants can contain clauses that look routine but carry significant risks- especially during investment, M&A, or expansion.
Here’s what we decode when reviewing the fine print:
What We Unearth in Contractual Due Diligence:
Vendor & Lease Agreements
• Lock-in periods that restrict exits or renegotiations
• Auto-renewal clauses with unfavourable terms
• Unclear termination rights that can lead to disputes
• Personal guarantees or performance penalties quietly tucked in
Franchise or Distribution Contracts
• Minimum purchase obligations or unrealistic performance targets
• Territorial exclusivity issues creating channel conflicts
• Unilateral pricing or branding controls by the franchisor
• One-sided indemnity clauses exposing the company
Loan Agreements & Debt Covenants
• Debt covenants that limit future borrowings or dividends
• Default triggers that could be unintentionally breached
• Cross-default clauses linked to other unrelated liabilities
• Hidden charges or step-up interest structures
SHA (Shareholders Agreement) / SSA (Share Subscription Agreement)
• Veto rights or reserved matters blocking critical decisions
• Exit restrictions or ROFR/ROFO clauses limiting future deal flexibility
• Drag/tag along provisions that may not align with investor strategy
• Dispute resolution terms that can delay exit or enforceability
Why It Matters:
A single clause - missed or misunderstood can:
• Derail an investment
• Complicate an acquisition
• Lead to unexpected legal or financial liabilities
• Create friction between founders, partners, or investors
The Due Diligence Insight:
What looks like boilerplate today… could become a bottleneck tomorrow.
That’s why contract review is not a formality - it’s a frontline defence.
Smart diligence isn’t just about validating numbers.
It’s about anticipating risk and preserving deal value.
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