Covid-19 – The impact on Mergers & Acquisitions

Given the uncertainty as a result of the Covid-19 pandemic the impact on M&A deals which are currently underway could be wide ranging. Volatile markets will undoubtedly lead to parties considering whether this is the right time to acquire/dispose of businesses. In particular, commercial and financial challenges are likely to create scepticism and tentative approaches to acquisitions and disposals.

Due Diligence

Buyers should be requesting the Sellers provide sufficient information for them to be able to ascertain what impact Covid-19 will have on the Target business (Target). Questions to ask the Seller might include:

  • How has the Target dealt with their employees to date?
    – Are there alternative working methods in place?
    – Where employees are working from home, have GDPR implications been considered?
    – Have any employees been designated as ‘furlough’?
  • With regards to any material contracts:
    – Is the Target able to comply with its contractual obligations under any material contracts?
    – Are there any contractual rights or legal principles that may excuse non-compliance or allow material contracts to be terminated (for
    example force majeure and frustration)?
    – What arrangements are in place with customer and supply chains including payment terms?
  •  Do existing insurance policies cover any losses that have already occurred or are likely to occur as a result of the crisis?
  • What is the impact on revenues and solvency risk?

In anticipation of the Buyer’s concerns and with the Buyer’s ability to visually inspect at this time, Sellers should proactively collate information regarding the above matters and upload them to the transaction’s data room.

Terms in the Share Purchase Agreement

  • Warranties and Representations

Buyers should consider requesting additional representations and warranties about the Target’s business relating to the impact of COVID-19. The responses to the additional due diligence questions (as set out above) should provide guidance as to which areas to focus on.

Sellers should, as is already common practice, seek knowledge and materiality qualifiers, and avoid subjective or forward-looking warranties. Sellers should also consider including a limitation of liability provision to exclude any liability arising out of corona-related claims.

  • Purchase Price Adjustments

Any adjustments in relation to purchase price should be revisited given the impact of the virus, for example, what constitutes ‘normalised’ working capital is likely to have changed.

  • Material Adverse Change Clauses

Where these clauses are effective, they may allow a party to back out of a deal or alternatively would assist in bringing parties back to the table in order to negotiate and discuss changes to the terms and most likely, the purchase price.


Market uncertainty may also increase the difficulty in obtaining committed financing, Buyers may find some financing options more expensive, as a result of ‘market flex provisions’ or otherwise.


Parties will need to consider the practicalities of closing as it is unlikely that for the time being a completion meeting will be practical or possible. It is likely that any anticipated meeting will need to be conducted remotely by electronic means. Fund transfers, handing over of paperwork and any movement of physical assets will also need to be dealt with.

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