In a family owned distributor or a trades contractor, the most valuable supplier arrangement is often the least documented. The owner and the sales rep at the supplier have known each other for years. The rate is whatever they agreed over dinner. The credit line is a favor. The product allocation during shortages is a courtesy.
None of this is in the data room, and all of it can disappear. The supplier has no obligation to the new owner, and a new owner they do not know may get a different answer. Surfacing these deals belongs in pre-close work; see the pre-close checklist and seller transition plan.
Find the handshake deals
Ask the seller and the purchasing person which suppliers give terms beyond the contract. Look for prices that do not match the published list, credit beyond standard terms, priority on scarce items, free freight, and rebate arrangements that are not written down. Compare supplier invoices to the price sheets.
Put them in a table: supplier, the arrangement, the annual value, who holds the relationship, and what it depends on.
Estimate the value at risk
For each deal, ask what happens if it ends. What would the price be? What would the credit be? Could we get the product elsewhere, and how fast? The value at risk is the difference, over a year, plus the cost of any disruption.
Rank the deals. A few will matter a lot. Spend your time there.
Bring the supplier into it
Meet the supplier with the seller, early. The seller introduces you, says they are comfortable with the transition, and asks the supplier to continue the arrangement. Tell the supplier your plans, your volume, and your commitment to pay on time.
Offer something in return. A written agreement with a term, a volume commitment, a prompt payment history, or a longer relationship. Convert the handshake into a short written agreement, even a letter of understanding. The goal is to make the arrangement survive the people who made it.
Plan for the loss
Prepare alternatives for the deals that matter most. Identify other suppliers, get quotes, and know your switching time. A supplier who knows you have options is a supplier who treats you better.
Be careful with consolidation while you are doing this. Moving volume away from a supplier who has been generous can cost you the arrangement; see consolidating suppliers after acquisition. And if the supplier is connected to the seller personally, the arrangement may be a related-party matter; see related-party deals buried in the financials. I would put a handshake supplier deal on one page and ask the supplier to sign it before I relied on it.
Decision table: what to do with a handshake supplier deal
Apply to each informal arrangement. Owner: the purchasing lead, with the seller.
| Question | If yes, it points to | If no, it points to |
|---|---|---|
| Is the annual value large enough to matter to margin? | Meet the supplier with the seller before or at closing | Note it and review in the first quarter |
| Does it depend on the seller personally? | Ask the seller to introduce and endorse the transition | Confirm with the supplier's account manager |
| Can the supplier be replaced quickly? | Keep a backup and proceed | Convert it to writing and offer commitments |
| Is the supplier related to the seller? | Treat as a related-party item and price it | Treat as an ordinary supplier |
| Will the supplier agree to put it in writing? | Sign a short agreement with a term | Prepare an alternative source |
What to put in the short letter
A letter of understanding does not need to be complicated. State the parties, the products, the price or the formula, the credit terms, the allocation commitment if there is one, the term in months, and a notice period for changes. Have both sides sign. Ask counsel to read it once.
The act of writing it down is itself useful. It tells you how much the supplier is willing to commit, and it shows you which parts were really a favor. A supplier who will sign the price but not the allocation is telling you which part is fragile, and you can plan around that.
If the supplier will not sign anything, that is information too. Treat the arrangement as a benefit you have for now, price your plan as if it might end, and keep the second source warm. Place a modest order with the alternative now and then so that the relationship exists when you need it.
Keep the commitments you make
If you ask a supplier to continue a favor, pay on time. A supplier who gives a new owner the benefit of the doubt, and then waits sixty days for payment, will not do it twice. Payment habits in the first quarter set the supplier's view of you for years.
Part of what you bought is a network of people who like doing business with the former owner. Keep as much of that goodwill as you can. For where this fits in the larger add-on approach, see integrating add-ons into a platform.
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Questions
What happens to informal supplier deals after an acquisition?
They may continue, change, or end, because the supplier has no obligation to the new owner. Identify each informal arrangement, estimate the value at risk, and meet the supplier with the seller early to ask them to continue. Convert the arrangement to a short written agreement if you can, and prepare an alternative source for the ones that matter most.
How do I find informal supplier deals?
Compare invoices to price lists, and ask the seller and the purchasing person which suppliers give terms beyond the contract.
Should I ask the supplier to put it in writing?
Yes, with something in return, such as a term or a volume commitment.
What if the supplier reprices after the sale?
Know your alternatives and the cost of switching, and negotiate from that position.