Corporate Transactions During the Covid-19 Pandemic
The Covid-19 pandemic has led to a reduction in economic activity and will inevitably lead to some buying and selling of businesses being put on hold. However, parties looking to progress a transaction in such times should consider how to allocate risks associated with the pandemic.
In terms of the information that should be sought during the due diligence process, buyers may wish to consider asking for information on the following points:
- risk assessments or scenario planning
- insurance policies (and their terms)
- supply chains
- the solvency of the target company
- existing commercial agreements and their termination provisions.
Warranties and indemnities
Buyers may be looking for assurances from the seller that the target company is prepared to withstand the Covid-19 pandemic and can remain solvent and profitable. Specific warranties may give the buyer a greater understanding of the target company’s planning and financial position. On the other hand, a seller will want to limit such statements to their knowledge at a particular time and cap their financial liability.
Specific indemnities related to the Covid-19 pandemic may also be sought by the buyer so that the seller will reimburse them for a particular liability should it arise. Again, a seller will look to limit its liability under such indemnities but their ability to do so depends on the relative bargaining position of the parties.
Purchase Price Adjustment
To further reassure a buyer they may seek a provision in the contract that the purchase price is adjusted should the target company’s profits be reduced following completion. A selling party is likely to resist this but it could allow the transaction to complete and have a time limitation.
Electronic communication has meant that more than ever, transactions can continue with minimal physical contact. The due diligence process can be conducted electronically so there is little need for a physical “data room” as in the past. Agreements can be signed remotely or electronically if required. Video and telephone conferences allow parties to continue communicating and law firms are generally well equipped to work with clients in this manner.
At Longmores, we are using our existing electronic resources to ensure that we can continue offering the same professional service to our clients. More information on how the firm is responding to coronavirus is available here.
For advice about corporate transactions during the Covid-19 pandemic, please get in touch.
Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.