• Commercial contracts in roll-up transactions get tested more than once: when they are signed, at each add-on acquisition, and again at exit. Terms that are harmless for a standalone business can become breaches or bargaining chips as the platform grows.
• Most favored nation pricing is the provision most likely to be breached by growth alone. A platform should rarely, if ever, agree to it in a customer contract.
• Termination for convenience rights and change of control provisions give counterparties leverage at the moment the sponsor is trying to sell.
• Most sponsor exits are equity sales or mergers, so change of control language usually matters more than anti-assignment language. A poorly drafted anti-assignment clause can still hide change of control concepts.
• Restrictive covenants, exclusivity provisions, and broad "Affiliate" definitions can reach add-on companies, sister portfolio companies, and a future buyer's existing business.
• IP terms need precise drafting: assignment language that actually transfers ownership, in-bound licenses broad enough to cover add-ons and successors, and out-bound licenses limited to what the customer is paying for.

Roll-Up M&A Article Series

• How to Streamline Roll-Up Diligence
• Post-Close Cleanup to Support a Stronger Exit
• Key Tax Structuring Issues in Rollovers
  • Rollover Equity in Partnership Acquisitions: Tax Planning Considerations for PE Sponsors
  • Rollover Equity in S Corporation Acquisitions: Tax Planning Considerations for PE Sponsors
  • Rollover Equity in C Corporation Acquisitions: Tax Planning Considerations for PE Sponsors
• Contract Considerations in Roll-Up Transactions (current article)

In a roll-up (also called a buy-and-build strategy), a private equity sponsor acquires a core “platform” company and then buys smaller “add-on” companies to fold into it. For private equity sponsors and platform companies executing a buy-and-build strategy, the contract terms that matter most are the ones growth can breach and a counterparty can use as leverage at exit. Six categories cause most of the trouble: most favored nation (MFN) pricing, termination for convenience, anti-assignment and change of control (a change in who owns the business), restrictive covenants and exclusivity, "Affiliate" definitions, and intellectual property (IP) ownership and licensing. A platform that settles its position on each early, and checks every add-on's contracts against those positions, protects both its growth plan and its exit value.

In 2023, our Commercial and Technology Contracts team wrote about important considerations for portfolio company commercial contracts, focusing on what changes when a business first receives a private equity investment. This final article in our Roll-Up M&A series revisits those provisions through the lens of repeat acquisitions. In a roll-up, each add-on brings its own contracts into the platform, and each provision gets tested again. This is the fourth and final article in our Ready to Roll series, which follows a roll-up from diligence through exit.

Why do commercial contracts carry more risk in a roll-up than in a single acquisition?

Because a roll-up changes the business faster, and more often, than most contracts were written to anticipate. When a business becomes a private equity-backed portfolio company, three characteristics shape how its contracts should be reviewed:

• Significant growth, both organically and through add-on acquisitions of similar companies or companies in adjacent verticals.
• A likely change of control in the short or medium term, when the sponsor exits.
• A new organizational chart, with new parent entities, new subsidiaries, and sister portfolio companies that may have little or no operational relationship to the platform.

A roll-up intensifies all three. Each add-on brings its own customer, vendor, supply, and license agreements, often negotiated by founders without outside counsel. Once inside the platform, those contracts interact with the platform's existing agreements and with each other. A pricing promise or non-compete that posed no problem for a standalone business can be breached by the next acquisition. A consent right buried in a vendor agreement can surface as leverage when the sponsor is ready to sell.

The answer is not to renegotiate every legacy contract, which would stall a high-volume pipeline. It is to know which provisions to keep out of the platform's new contracts, which to look for in every add-on, and which to clean up before exit. That approach fits naturally with the risk tiering framework for roll-up diligence described earlier in this series. If you are on the deal team, your role in diligence is usually to spot these provisions and flag them for the attorneys, not to resolve them. Knowing where they tend to hide is most of the work.

Are the platform's customer contracts built around the sponsor's financial metrics?

They should be, and that alignment gets harder to maintain as sales teams combine. A new sponsor typically arrives with target metrics that will measure value creation and, ultimately, the platform's value at exit. For software-as-a-service businesses, annual recurring revenue (ARR) (the yearly value of recurring contract revenue a business expects to keep collecting) and cash flow usually top the list. Customer contracts need to be structured with those metrics in mind, which takes real collaboration among platform leadership, legal counsel, and the sales team. That collaboration matters even more after add-ons, when new sales leaders or combined sales teams bring different negotiating habits.

A simple example shows why. A customer deal might begin as a two-year, $1,000,000 contract paid in two equal annual installments of $500,000. After negotiation, it becomes a four-year, $2,000,000 contract paid in three annual installments of $200,000, followed by a final installment of $1,400,000. Both versions average $500,000 per year, but the second collects only $200,000 in each of the first three years and pushes $1,400,000 into year four. That leaves cash flow thin for years and depends on the customer staying the full term. The second deal is bigger on paper, but it could affect ARR and cash flow very differently. Whoever negotiates it should confirm that management approves the structure before it is signed.

Key takeaway: The platform's sales and legal teams need to be aligned with management on key financial metrics so that customer contract terms support those metrics. The next six sections cover the provisions most likely to undercut them.

Why should a platform rarely agree to most favored nation pricing?

Because growth alone can put the platform in breach. An MFN provision promises a customer that its price will never be higher than the lowest price charged to any other customer for the same or similar goods, services, or technology. Formulations vary widely, and some reach payment terms as well as price. In a roll-up, an MFN can be triggered three ways:

1. Organic growth. More customer contracts mean more chances that a new customer gets a better price than the MFN customer.
2. Add-on acquisitions. When the platform acquires a company, it takes on that company's customer contracts. If the add-on sells the same or similar products at lower prices, the platform can be in breach the day the deal closes.
3. A strategic acquirer with a similar customer base may find its own pricing pulled into the comparison. If the contract is material, the acquirer may have to adjust its own prices to comply. Strategic acquirers tend to view MFN provisions negatively for that reason, which can lower the platform's valuation.

Which parties the MFN covers matters as much as the price promise. If the provision reaches the platform's "Affiliates," a change of control can sweep an acquirer's entire existing business into the comparison.

Sample language to avoid: "Supplier warrants that the prices under this agreement are equal to or less than standard prices offered by Supplier generally or to any other customer." Note that “any other customer” includes every customer the platform adds in the future, including customers it inherits through an add-on.

Negotiating tip: If an MFN cannot be avoided, tie it to similarly situated customers contracting for similar volumes under similar terms and conditions. Limit it to the contracting entity rather than its Affiliates, and consider excluding contracts the platform acquires in add-on transactions.

How do termination for convenience rights reduce a contract's value?

They let the counterparty end the agreement for any reason or no reason, usually on short notice, so the platform cannot count on the revenue or the relationship. That creates three problems:

• The platform may not be able to recognize revenue the way management expects, which affects the financial metrics used to measure performance and, in turn, valuation.
• An arrangement the platform depends on can end midway through, pulling the rug out from underneath it.
• An acquirer will not want to assume a material contract the other side can end at will. It may require assurance before closing that the right will not be exercised, which gives the counterparty leverage to ask for concessions in exchange for giving it up.

The same issue shows up in add-on diligence. Where an add-on's revenue is concentrated in a handful of customers, termination for convenience rights in those contracts go directly to the value of what the platform is buying. For example, if a customer representing 30 percent of an add-on’s revenue can walk away on 30 days’ notice, that revenue is far less certain that it looks, and the price the platform pays should reflect that.

A for-cause right is the better alternative. A provision permitting early termination only if the platform materially breaches and fails to fix the problem (or “cure” it) within 30 days after written notice ties termination to performance the platform controls. A provision letting the customer terminate "at any time, without cause" on 30 days' notice does not.

Negotiating tip: For key contracts, removing the termination for convenience right is only half the job. Review each party's renewal and non-renewal rights against the effective and expiration dates, so that a renewal provision cannot work as a de facto termination for convenience right.

Which matters more at exit: anti-assignment or change of control provisions?

Usually change of control, because a platform's most likely exit is an equity sale or merger, not an asset sale. In an equity sale, the buyer purchases the company’s ownership and its contracts stay with the same legal entity. In an asset sale, the buyer selects specific assets, and each contract has to be transferred separately. The two provisions answer different questions:

• Anti-assignment provisions address whether a contract can be transferred. They prevent a party from assigning the agreement to a third party without the counterparty's written consent. Drafted properly, they should matter mainly in an asset sale, where the contract itself has to move to the buyer, although depending on the deal structure and governing law, a merger can sometimes be treated as an assignment too
• Change of control provisions address what happens when ownership changes. They either let the counterparty terminate if a certain percentage of the platform's ownership changes hands, or prohibit a change of control without the counterparty's consent.

Either form can let the counterparty terminate at exit, refuse consent, or hold the deal hostage for better terms or an additional payment. If the contract is material, the acquirer may insist on resolving it before closing, which strengthens the counterparty's hand. Software vendors and landlords are frequent examples of parties that use these provisions as leverage.

In a roll-up, this analysis runs at every add-on, not just at exit. When an add-on is structured as an asset purchase, the target's anti-assignment clauses determine which contracts need consent to transfer. When it is an equity purchase or merger, the target's change of control provisions do. Either way, those consents belong on the diligence list so the integration team is not surprised after closing.

The drafting trap to watch for is an anti-assignment clause with change of control concepts built in:

Sample language to avoid: "Neither party may assign this Agreement, in whole or in part, without the other party's written consent. In the event of a party's merger, change of control, reorganization or sale of all, or substantially all, of one party's assets to a third party, the other party may terminate the agreement . . . ." Notice that the second sentence turns what looks like an ordinary assignment clause into a termination right if the platform is merged or sold.

A provision drafted with a future exit in mind keeps the consent requirement but carves out the transfers a sponsor is likely to need:

Preferred language: "Neither party shall assign any of its rights hereunder without the prior written consent of the other party; provided, however, that [Platform] may assign its rights without such consent and upon 30 days prior written notice to the other party, to (a) one or more of its Subsidiaries or Affiliates, or (b) an entity that acquires all or substantially all of [Platform]'s assets."

The Affiliate carve-out also gives the platform room for internal reorganizations after add-ons, such as consolidating contracts into a single operating entity.

Key takeaway: Anti-assignment and change of control provisions will be among the most heavily scrutinized terms in exit diligence. Avoid giving customers a termination right on a change of control, and draft assignment clauses so the transfers a sponsor will need do not require consent.

Can restrictive covenants and exclusivity provisions block add-on acquisitions?

Yes, and they can complicate the exit as well. These provisions usually last for the term of the contract plus a survival period (the time the restriction continues after the contract ends), within a defined geography or product vertical (a specific product line or industry segment):

• Exclusivity provisions prohibit a party from entering into a similar or competitive arrangement with a third party.
• Non-compete provisions prohibit a party from competing with its counterparty.
• Non-solicitation provisions prohibit a party from soliciting the counterparty's employees or customers.

This section addresses covenants in agreements between businesses. Employee non-competes raise separate state-law questions, covered in our guide to post-close cleanup for roll-up acquisitions, along with monitoring compliance with commercial restrictive covenants after closing.

Hypothetical: A platform that sells widgets agrees, in exchange for discounted pricing, to buy its input goods from only one supplier. As the platform grows, the supplier cannot keep pace, or a competing supplier offers shorter lead times and better pricing, but the platform cannot switch. The platform then acquires an add-on with its own supply agreement with a different supplier. Once the add-on closes, the platform may be in breach of its exclusivity commitment.

Restrictive covenants can be even more consequential at exit, because every potential acquirer will test them against its own plans and its existing business. In one transaction, a target had granted a key customer a broad non-compete, promising not to compete with that customer. The strategic buyer that wanted to acquire the target competed with that customer. The non-compete was drafted so broadly that it would have covered the buyer's entire business if the deal closed.

Negotiating tip: Before agreeing to an exclusivity provision or restrictive covenant, test it against four things: the platform's current business, its growth plan, the add-ons in its pipeline, and the businesses most likely to buy it.

Could a sister portfolio company put the platform in breach?

Yes, if the contract defines "Affiliate" broadly enough. In most commercial contracts, an Affiliate includes a party's parent, sister, and subsidiary companies. For an ordinary corporate family, that group runs one business enterprise. For a platform, a broad definition can sweep in the sponsor, its funds, and every other company in the sponsor's portfolio, none of which the platform controls.

Suppose the platform agrees to a customer non-solicitation clause that applies to it "and its Affiliates." If another company owned by the same sponsor solicits that counterparty's customers, the platform may be in breach of a promise it had no ability to keep. Two timing questions sharpen the risk in a roll-up. Does the definition cover only current Affiliates, or also entities that later become Affiliates? And does each add-on become bound by the platform's restrictions the day it closes?

The same word works in the platform's favor elsewhere. In an in-bound license, extending rights to Affiliates lets add-ons use the licensed technology without a new agreement. The goal is not to strip "Affiliate" from every contract but to use it deliberately: broadly where the platform receives rights, narrowly where it accepts obligations.

Negotiating tip: Flag every provision that references Affiliates and confirm that including them makes sense in that provision. Draft the definition narrowly, recognizing that the platform may have no operational relationship with its sponsor's other portfolio companies.

Does the platform own, and have the right to use, the technology its growth depends on?

Only if its contracts say so precisely. Platforms rely on newly developed technology to create efficiencies and scale, and some depend on it for revenue. IP ownership and licensing remain areas where the exact words of the contract control the outcome.

Does the assignment language actually transfer ownership?

IP ownership works like a chain, and a missing link can break it. The chain typically runs through founders, employees, independent contractors, and third-party development companies, along with those companies' own personnel. Generally speaking, default law provides that a third-party developer, not the company paying for the work, owns what it creates. Under federal copyright law, for example, a contractor's work qualifies as a "work made for hire" only for limited categories of works and only with a signed written agreement.

As a result, a provision stating that work product "shall be the sole and exclusive property of the Company" may not transfer ownership at all. A proper assignment provision should include:

• Work made for hire language (which makes the hiring party, rather than the creator, the owner), where it applies.
• A present assignment ("hereby assigns"), not only a promise to assign later.
• A backup perpetual, irrevocable license in case the assignment fails.
• A moral rights clause (in some countries, creators keep rights over how their work is credited and changed, and this clause waives those rights).
• A further assurances clause (a promise to sign any additional documents needed later to confirm the transfer).
• A mechanism to confirm that a third-party developer has the necessary agreements with its own personnel.

These gaps can hold up a transaction. In one private equity recapitalization of a software-as-a-service business, the founder had used employees, third-party consultants, and both foreign and domestic contractors. A former co-founder had never assigned IP to the company. Closing was delayed more than six months while ownership was cleaned up, at the founder's expense. Founder-led add-ons are especially likely to have the same gaps.

Should licenses be broad or narrow?

It depends on which direction the license runs. A license grants permission to use IP without transferring ownership.

In-bound licenses, where the platform is the licensee (the party receiving the rights), matter to every platform, because nearly every business function runs on licensed software. Generally, broader is better. The grant should account for:

• Whether the technology is an internal tool or will be built into products and services sold to customers.
• Use by Affiliates, including future add-ons.
• Future needs from organic growth and add-on acquisitions, not only current needs.
• The likely needs of a future acquirer.
• Continuation after a change of control, so neither the agreement nor the license can be terminated when the sponsor exits.

Out-bound licenses, where the platform is the licensor (the party granting the rights), matter most for platforms that commercialize technology as a core revenue stream. Here, narrower is better. The grant should match the use case the customer is paying for. An overly broad grant can leave revenue on the table for future use cases and, in the worst case, let the customer build derivative technology and compete with the platform.

Acquirers scrutinize out-bound licenses closely. In one sale process, a target had granted a customer a non-exclusive, perpetual license to patented technology in exchange for pre-payments that helped fund commercialization. The strategic buyer competed with that customer, and the licensed technology was material to the valuation. The buyer would not close with the license in place, the target could not secure its termination, and the deal did not close.

What should a platform do at each stage of the roll-up?

Build contract discipline in at four points:

1. At the platform. Before the add-on pipeline gets busy, settle standard positions: avoid MFN pricing and termination for convenience rights, carve out assignments to Affiliates and successors, refuse change of control termination rights, narrow the Affiliate definition, and use IP assignment language that works. Make sure sales and procurement teams know which terms need management or counsel sign-off.
2. At each add-on. Screen the target's material contracts for MFN, exclusivity, non-compete, and Affiliate provisions that will interact with the platform's existing contracts, along with any consents the transaction itself requires. These provisions often sit in the definitions section, the term and termination section, or the general terms near the end of an agreement, so read beyond the pricing and scope sections.
3. After closing. Move the add-on onto the platform's positions for new contracts, and fix the legacy contracts that matter most at renewal rather than all at once.
4. Before exit. Inventory change of control and consent rights in material contracts, and review MFN pricing, restrictive covenants, and out-bound licenses the way a strategic buyer will.

After a private equity investment, and again at every add-on, a platform should review its commercial contracts with new or enhanced scrutiny. The questions stay the same each time: how does a term affect current operations, organic growth, growth through add-ons, and value at exit? Platforms that ask them consistently are better positioned to reach exit with fewer surprises and fewer counterparties holding leverage.

For questions about commercial contract terms in add-on acquisitions, or about preparing a platform's contracts for exit, contact our Commercial and Technology Contracts or Mergers & Acquisitions practice groups.

To further explore these issues, join us for our upcoming webinar, Contract Considerations in Roll-Up Transactions, on Tuesday, October 13, 2026, from 11:30 AM to 12:30 PM CT. The final session of our four-part Ready to Roll series will examine provisions that commonly drive negotiation, allocate risk, and affect integration and exit planning. It will focus on practical drafting and deal points for lower middle-market transactions.

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