COVID-19 Impact on Merger & Acquisition Transactions

COVID-19

Many acquisition processes are being put on hold pending further clarity on the broader health and economic consequences of COVID-19.  In the future, the impact of the pandemic on buyers and sellers will be seen in a wide range of implications, including a “new” focus on:

  • Preparing for sale – is it the right time; what are current valuations; will full value be recognized.
  • Timing – in this period of uncertainty, additional time is needed to meet new logistical challenges for satisfying relevant requirements.
  • Due Diligence – heightened scrutiny in all areas of due diligence is seen; more robust inquiry regarding Force Majeure Clauses in key contracts; emergency preparedness and insurance coverages.
  • Acquisition agreements – allocating the increase risk brought on by COVID-19 between buyers and sellers in acquisition agreements through the mechanisms of earn-outs, representations & warranties, interim operating covenants, closing conditions, termination fees and special indemnification provisions based on coronavirus-related due diligence findings.
  • Financing – is attractive, long-term lending available.

Companies engaged in mergers and acquisitions should seek the guidance of their advisors to deal with current market volatility, increased risk and uncertainty posed by the spread of the virus.