What Is Change of Control? | Agency M&A Definition
A change of control occurs when a majority ownership stake in a company transfers to a new party, either through a sale, merger, or significant equity restructuring. Change-of-control clauses appear in client contracts, employee agreements, vendor agreements, and loan documents, and they define what happens — or what rights are triggered — when ownership changes hands.
Change of Control in Agency M&A
Change of control is one of the most consequential issues in marketing agency M&A because agencies are fundamentally relationship businesses. When selling a digital marketing agency, the buyer must carefully review every client contract for change-of-control provisions. Many enterprise clients include clauses that allow them to terminate their contract — often with just 30 days’ notice — if agency ownership changes. For an agency where the top five clients represent 60% of revenue, these clauses represent existential deal risk. Buyers evaluating a creative agency typically map out every contract with a change-of-control trigger, estimate the revenue at risk, and either negotiate client consent before closing or adjust their offer accordingly. Employee agreements may also contain change-of-control provisions, sometimes granting accelerated vesting of equity or bonuses upon a sale, which increases the buyer’s total cost. On the vendor side, agencies that rely on preferred pricing from media platforms or technology partners may find that those rates reset upon a change of control. Sophisticated sellers address these issues proactively by auditing their contracts and, where possible, removing or softening change-of-control language before going to market.
How Change of Control Affects Agency Valuation
Change-of-control provisions directly impact both valuation and deal structure. If key client contracts contain termination-upon-change-of-control clauses, buyers will often discount their valuation by the amount of revenue deemed at risk. An agency with $4M in revenue might see its effective valuation base reduced to $3.2M if $800,000 in client contracts have unfavorable change-of-control terms. This alone could reduce the purchase price by $400,000 or more at a 5x revenue-at-risk discount. Alternatively, buyers may shift more of the purchase price into an earnout structure, conditioning payment on client retention post-closing. Sellers who proactively secure client consent or renegotiate contracts to remove these clauses before listing their agency can materially strengthen their negotiating position.
Example
A paid media agency with $2.8M in annual revenue has a $700,000 retainer contract with a financial services client. The contract includes a change-of-control clause allowing the client to terminate with 60 days’ notice upon ownership transfer. During due diligence, the buyer identifies this risk and reduces their initial 6x EBITDA offer by $350,000 (reflecting a 50% probability of client departure). The seller responds by securing a written commitment from the client to remain for at least 18 months post-acquisition, and the buyer restores $250,000 of the reduction, settling on a final price of $2.98M.
Related Terms
Further Reading
Ready to find out what your agency is worth?