Diligence changes a deal when a finding changes the business the buyer expects to receive. The useful conclusion identifies the affected assumption and the available response. A longer list of risks does not accomplish that by itself.
The revenue exists, but the commitment does not
Suppose a seller describes a large share of revenue as recurring. The customer contracts permit termination on short notice, and several important customers are approaching renewal. Historical collections are real; the assumption that the buyer is purchasing durable future revenue may be weaker than the valuation suggests.
The response could be a price adjustment, a requirement for specified renewals before closing, or contingent consideration tied to retained business. Each allocates a different risk. An earnout can bridge a valuation gap, but the parties must address who controls pricing, service quality, and customer relationships during the measurement period.
A core operating right will not transfer as expected
A business may depend on a software license or customer agreement that requires consent for the contemplated transaction. Whether consent is needed can turn on the transaction structure and the actual assignment or change-of-control language.
If the buyer cannot operate a central service without that right, an indemnity is not a substitute for consent. The buyer may need consent as a closing condition, a different structure, or a workable replacement. Compensation for a later loss does not restore an unavailable operating right.
Ownership presents a related problem. Payment to a contractor does not necessarily transfer copyright in software or content. Federal copyright law distinguishes initial ownership, works made for hire, and written transfers. A missing assignment may require a cure from the actual rights holder before the seller can deliver what the agreement promises.
The cure is possible, but not on the assumed schedule
A missing approval may be obtainable after a regulator, licensor, or counterparty completes its review. That still changes the deal if financing expires, an important employee leaves, or the buyer has already committed to an integration date.
The options include moving closing, changing interim operating commitments, allocating the cost of delay, or ending the transaction. Signing an agreement does not make the underlying dependency disappear.
Protection should match the finding
A closing condition addresses what must be true before the buyer completes. An indemnity allocates specified losses after a breach or identified event. An escrow can secure some payment exposure, subject to its amount, duration, and release terms. None performs all three functions.
The recommendation should also distinguish an adverse fact from missing evidence. An unsigned assignment is a different problem from an assignment that may exist but has not been located. Both deserve attention, but they do not justify the same conclusion.
See Selling a Service Business and the Acquisitions, Sales, and Organizational Combinations Guide.
