Classification: Under the Radar
Section: Covenants
Negotiation Time: Minimal
Transaction Costs: Insignificant
Major Impact: Risk Management


What is This? Acquisitions are a process, and even after the sale is closed it takes all those involved some time to adjust to their new circumstances. That includes customers, many of whom will continue to send their payments to the Seller (especially in business-to-business relationships). Also, customers are not aware of the specific deal terms, so they may send money to the Buyer that is actually owed to the Seller. Regardless of where the payments are initially sent, this covenant is aimed at making sure they end up where they’re supposed to be.

The Middle Ground: For any funds received by the Seller on or after the Closing Date that relate to the Purchased Assets, the Seller agrees to pass them along to the Buyer within a set number of days. Similarly, the Buyer agrees to send to the Seller any funds it receives that relate to the Excluded Assets within a similar time frame.

Purpose: The rights to the money mentioned here are established elsewhere in the Agreement, so the legal effect of this section is really to set a time frame for when that money must be turned over.

Buyer Preference: None.

Seller Preference: None.

Differences in a Stock Sale Transaction Structure: This clause need not be included in a Stock Purchase Agreement because there are no Purchased Assets or Excluded Assets. Everything, good or bad, goes to the Buyer after the Closing.


We want The Middle Ground to be an ongoing dialogue for and resource to the lower middle market M&A community. The outline above is generally applicable, but there is always specific case law and nuance around certain industries that can be useful in helping buyers and sellers come together. If you are a lawyer or deal professional, we encourage you to add your perspective below.