Does the Covid-19 pandemic have an effect on M and A transactions

The present crisis will have consequences for those upcoming merger and acquisition transactions and for ongoing ones also.  Below are issues that will need careful consideration.

Factors to consider during the Due Diligence Process

With regards to future or forthcoming company acquisitions, there are a number of things that should be considered and looked into at the investigatory phase.   One issue which should be given serious attention is that of employment law.  There are many factors involved here, from shorter working hours, paying salaries in spite of losing workers, releasing workers because of shutdowns and so forth.  It is also important to look into the present insurance situation as to whether there is existing risk insurance to cover any or all of these possible scenarios.

Data protection regulations could also be an issue and will need special focus. This probably more from the seller’s side.   If any of their key employees are infected with the coronavirus this could be problematic.  These key workers may have access to sensitive information and this could have more impact than just acquiring an Intertops casino no deposit bonus.  This will need serious consideration.

Another area of investigation which will be important at the due diligence phase will be to look into any possible legal disputes arising from the current situation.  Any broken or unfulfilled contracts with employees and/or other contractual relationships.   Therefore, focusing on contracts will be an important aspect of the investigation.   Many of these contracts are likely to include many general terms and conditions of business which may include things like delivery times and limits, defaulting on delivery and maybe even ‘force majeure’.  It is therefore essential to know how these might affect the legitimacy of the contract in question.

Issues concerning the Share Purchase Agreement

There are some specific issues that arise in respect to the share purchase agreement.   These will depend on the particular views of those involved in the agreement.

Owing to the present situation brought about by the coronavirus and its possible consequences,

it is particularly important that the prospective purchaser of any company be assertive when it comes to protecting him or herself against any adverse issues that may have developed in the target company.

Consequently, a contractual right of withdrawal needs to be considered. This would come into effect if it comes to light that there has been a considerable and detrimental change of the company’s financial situation and net assets between the time of the initial signing date and the final closing date.  This can be included as a “material adverse change” clause included in the share purchase agreement.

Within this setting, it could also be questionable if a MAC clause is relevant at all if we are looking at the consequences of the Coronavirus. It will depend on the specific details of the clause.  Altered conditions, specifically economic, caused by natural disasters are not in general covered by a MAC clause.   Situations generally covered by a MAC clause are those that effect a specific target company, in this case, between the time of initial signing and date of closing.

So, from the purchaser’s perspective, if he manages to include a MAC clause, the issues concerning material depreciation or loss should be specifically listed. This should also include situations that impact the general market and will in turn have consequences for the target company.  For instance, any recurrence or new outbreak of the virus may lead to a slow down in orders or supplies.   It is possible to include thresholds, which would need to be decided upon, that would be used in case of these adverse conditions arising.

Ultimately, the inclusion and use of a MAC clause does not automatically lead to a cancellation of the share purchase agreement.  It is likely that the seller will be unwilling to agree to the legal repercussions of this.  One way to resolve such issues could be to readjust the purchase price but this would also need a contractual agreement to be in place.

However, an extension of the MAC clause is not beneficial from the seller’s side.  This will protect the seller and the security of the transaction.

Both sides need to be happy.  The possibility of introducing a break up fee could work if the seller is willing to accept a MAC clause.   If the buyer decides to use the MAC clause and backs out of the agreement between the initial signing and the final closing date, then the seller would be able to receive a fixed sum that was already agreed upon in the share purchase agreement.

If the purchaser and seller cannot come to an agreement on a MAC clause, then the purchaser could try to withdraw from the agreement using the Coronavirus outbreak as the reason.  They would be using the “loss of the basis of the transaction” (section 313 of the German Civil Code “BGB”) But this will not be easy to enforce as the courts have very stringent requirements when it comes to amendments included in contracts.

Bringing this issue to the court first requires that this possibility has not been included in the share purchase agreement.

It is important to stress that each case is different and will need to be assessed individually according to the specific factors involved.  In the present situation and the effects of the coronavirus, both purchasers and sellers should make sure that they seek legal help.  Share purchase agreements should include much of the above and perhaps other factors in order to make the agreements legally secure for both parties.