What are interim operating covenants in M&A, and do they affect a data license?

The short answer

Between signing a purchase agreement and closing, the seller still runs the company, but the buyer has priced a specific business. Interim operating covenants protect that price. They are negotiated contract terms, so their exact scope depends on the agreement. This is general information, not legal, tax or financial advice. Confirm with your own counsel before acting.

What do interim covenants usually say?

Most agreements contain two layers. The first is a general promise to operate in the ordinary course of business consistent with past practice and to preserve relationships. The second is a list of specific actions the seller may not take without the buyer's consent. Consent standards vary: some agreements say consent may not be unreasonably withheld, others leave it open.

The language to look for in the disclosure schedules and the covenant article:

• "ordinary course of business consistent with past practice"
• "use commercially reasonable efforts to preserve" customer and supplier relationships
• a negative covenant list that begins "shall not, without the prior written consent of Buyer"
• a carve-out for actions required by law or the agreement itself

Which actions typically need consent?

An exclusive AI-training license for an agreed term is rarely "ordinary course" for an operating company, so assume consent is needed unless counsel reads the agreement otherwise. That is general guidance, not a reading of any specific contract.

For background on why AI-training licenses are being discussed at all, the Copyright Office's AI initiative page hosts its Part 3 report on generative AI training, released in pre-publication form in May 2025; it is a report, not law, and it does not address merger covenants.

Why timing matters for advisors

Three windows exist, and the clean ones are on either side of the interim period.

If a client may want a license, the sell-side advisor should raise it while the term sheet and disclosure schedules are being drafted, not after signing. See what is a virtual data room for where disclosure lands.

Questions to ask deal counsel

• Does our covenant list restrict licensing or granting exclusivity over company records?
• Is a one-time license payment "ordinary course" under our definition?
• Does the buyer's consent standard allow it to refuse, delay or condition?
• Do the representations about IP and data need updating if we license?
• Should the license wait until after closing, with the buyer's input?

What this means for a referral partner

Partners are not deal counsel and should not advise on covenants. Your job is to raise the question early and let the client's lawyers answer it. In practice that means asking about data assets at the first readiness conversation, before the letter of intent hardens; the exit readiness guide covers that sequence, and the sell-side advisor role shows where it fits. The average private equity holding period explains why sponsor-owned targets often carry layered history, and what is proprietary data helps frame the rights question.

The company fit checker is a preliminary, non-binding screen with no contact details required. The who qualifies page lists the baseline: 50+ full-time employees at peak (contractors excluded), several years of documented operations, rights to license, and an authorized sponsor. Nothing is binding until the company agrees price and terms and signs, and data is delivered only after an executed agreement and the company's authorization.

How rewards work for advisors

Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company. The reward is paid only after the buyer pays and SourceX receives its fee; an introduction, meeting or signed agreement alone does not trigger payment, and no reward is guaranteed. Licensed professionals should check their own rules on referral fees and disclosure, and confirm engagement letters allow outside introductions. See the M&A advisor page.

Next step

Add one line to your intake memo: "any data licenses planned or signed?" If a client has years of operational records, register as a partner and introduce the owner before signing, or send them to sourcex.si/apply.