Considerations for mergers and acquisitions following the Coronavirus outbreak

Last updated: 14th March 2020; 10.00am

With the continued and increasing impact of COVID-19 on business and indications of a fall off and suspension of deal activity as well as challenges to supply chains and further concerns around the impact social distancing measures may have on workforces corporate Partner Richard Robinson  considers below some of the issues that may arise on corporate transactions as a result of the crisis.

Exclusivity

Where deals are subject to timelines around exclusivity those periods may need extending. If there are liabilities attached to not meeting timeline such as abort fees or cost underwrites those provisions may need to be re-negotiated.

Due Diligence

We have seen an increased interest and focus on the following areas of due diligence:

• Infectious diseases insurance and general cover for coronavirus related issues
• Impact on contracts and termination rights for force majeure
• Availability of alternative suppliers where travel bans are in place with existing suppliers
• Working capital and solvency risk and assumptions around future performance
• Employee rights and costs associated with illness and home working

Transaction Delay

Buyers may look to postpone deals or exchange contracts subject to coronavirus related conditions, where regulatory or HMRC consent is required it may be that there will be delays in normal timescales that could impact deal timelines.

Where contracts are subject to split exchange and completion the parties will need to consider if conditions will need to be subject to coronavirus related carve-outs.

Contractual Terms

Disclosure, Warranties, Indemnities and limitations all need to be read in the context of the crisis. The current situation may well require a re-assessment of the buyer’s knowledge and materiality should apply to warranties and if new disclosures should be made. Care should be given if warranting the reasonableness of any financial forecasts.  Risk in certain areas may need to be re-allocated and the bargaining position of the parties may now shift towards purchasers when negotiating indemnities and other contractual terms.

W&I Policies

Where W&I policies are in place the terms should be carefully reviewed to ensure there are no relevant exclusions that might apply.

Funding

Credit committees may alter their views on transactions generally and in specific sectors such as travel or hospitality their appetite for approving deals might change. Businesses may need to move from a sale footing to a more defensive position and look internally.

If you have any questions arising from this please contact a member of the Napthens Corporate Team or speak to Richard Robinson on 01254 686 208.