Anonymised, illustrative composite. The only contract file in this hub where the harm comes from the buyer's own business, not from anything the target did.
At a glance
The target is a regional distributor of industrial packaging and shipping supplies in Alberta, being bought by a national packaging distribution platform that already serves a large multi-province retailer under its own volume-based national account pricing. The target's largest customer, a regional grocery distribution centre worth $2.3 million of the target's $11 million in annual revenue, has a supply agreement containing a most-favoured-nation clause: the target promises this customer will always receive the lowest price the target charges any customer for the same product lines, checked on a quarterly basis.
A standalone review of the target's own contracts and pricing would not have found a problem — the target had never knowingly sold the same products to anyone at a lower price than its MFN customer received. The problem only appeared once the buyer's own price list was laid alongside the target's, during integration planning rather than diligence proper. The acquiring platform's national account pricing for its own large retail customer, on several of the same packaging product lines the target's MFN customer bought, was lower than the target's MFN price — not because either side had done anything wrong, but because the platform's national volume commanded a better unit cost than the target's regional volume ever had.
Once the two companies became one legal enterprise on closing, the MFN clause's own definition of "any customer" no longer stopped at the target's historical customer list — on a literal reading, it now reached the platform's national account too, since that customer would be buying from the same combined company. Matching the target's MFN customer to the platform's lower national price, rather than triggering a breach claim, was estimated to cost $140,000 a year in margin on the $2.3 million relationship — roughly a six-point reduction in the gross margin the target had been earning on that account.
No statute governs a most-favoured-nation clause between two private commercial parties; its meaning and its reach are set entirely by its own drafting. This clause defined its trigger as the price charged by "the Company" to "any customer" for the covered products, without excluding customers served by an affiliate or a future parent, and without limiting the comparison to the Company's historical business as it existed when the clause was signed. On that wording, a combination that brought a lower-priced customer under the same corporate roof as the MFN customer was capable of triggering the clause the moment closing happened, whether or not anyone intended that result when the clause was first negotiated years earlier.
Rather than close and risk a breach claim — or quietly ignore the clause and hope the customer never compared notes with the platform's other account — the buyer had its counsel go back to the MFN customer before closing and renegotiate the clause into a narrower form: the price guarantee was redefined to apply only within the target's own historical customer base and geography, expressly carving out pricing extended to customers served by an affiliate under a separate national account structure. The customer agreed in exchange for a modest additional volume rebate, and the renegotiated clause was signed before closing rather than left to be discovered afterward.
Had the clause been left as written and the mismatch discovered by the customer post-closing rather than by the buyer's own integration team beforehand, the exposure ran two ways. Matching the lower price going forward, on the clause's own terms, cost an estimated $140,000 a year with no cap on how long that lasted. Refusing to match it and disputing the clause's reach risked losing the customer entirely — $2.3 million of revenue — over a dispute the buyer's own pricing had caused, which is a materially worse outcome for a relationship the deal was partly valued on keeping.
The tell was that this defect was structurally invisible to a diligence process built around the target alone. Every other contract file in this practice looks for problems inside the target's own business; this one only exists because of what the buyer brings to the table. A most-favoured-nation clause should be checked not only against the target's own price list, as most reviews do, but against the acquirer's price list too, on every product line both companies happen to sell to anyone.
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