Rupert Parker, Solicitor in the Corporate team at BPE, looks at how COVID-19 has affected the way M&A deals are conducted.
The M&A landscape post COVID-19…
We have seen an unprecedented change to the legal landscape generally and the form of agreements being negotiated as part of M&A transactions, changes that we predict will be incorporated into the way deals are structured even once the pandemic has passed.
Prior to COVID-19, force majeure clauses, where contracts are terminable due to outside events such as war, pandemics, natural disasters or “acts of God”, in a target company’s commercial agreements were considered boiler plate clauses, something to note but that would not have an impact on how a deal progressed.
As a result of COVID-19, identifying force majeure clauses has become a crucial factor in due diligence as many companies have either had to rely on their terms or been frustrated by their inclusion in an agreement. The pandemic has highlighted the importance of such clauses and buyers making specific requests to identify such clauses will persist long after the pandemic has ended.
Similarly, knowing that the company has in place a proper business continuity plan, if not a requirement for an acquisition, will at the very least be something a buyer may strongly want to consider putting in place following completion of its purchase.
Aside from the change in scope of due diligence, the following are also considerations that buyers will need to bear in mind when structuring a deal:
- New Leases: buyers may wish to consider entering into a new lease with appropriate break or rent suspension provisions in the event a property cannot be occupied due to COVID-19 or otherwise;
- Earn-outs: now a common feature of transactions, they benefit the buyer as they ensure the ultimate consideration paid is commensurate with the success of trading and can benefit sellers if otherwise a price reduction would be negotiated due to a temporary downturn as a result of COVID-19; and
- Government Assistance: with companies having taken advantage of schemes such as CBILS, bounceback loans, furlough and business rates relief, heightened levels of due diligence are required and protections included in any purchase agreement to ensure a buyer is covered against government clawbacks as a result of improperly claimed assistance.
The impact of COVID-19 on the corporate M&A market will likely be felt long after the majority of physical restrictions are lifted on (theoretically) 21 June 2021. We have seen a continued appetite for buyers to acquire companies throughout the pandemic at a broadly similar level to before the global crisis.
What has changed is the way deals are now approached, with consideration of the impact that lockdown has caused on businesses in all sectors. These considerations will likely linger in people’s minds for many years to come.
What should I do now?
If you are considering an acquisition or disposal of a company or its business assets, we would be happy to discuss the type of structure you may wish to consider in light of the impact of COVID-19.
Full details of the team and the ways we can support you can be found at www.bpe.co.uk/services/team/corporate/
LinkedIn: BPE Solicitors LLP