Investment and M&A Transaction Considerations as COVID Restrictions Begin to Ease

AK White Paper

PUBLISHED ON: May 28, 2020

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As domestic and foreign social distancing restrictions are gradually lifted, and as M&A and investment transactions resume, merger partners and investors must evaluate how a business is handling the pandemic, and what “going forward” will look like in the immediate and medium term. As part of this analysis, supplemental due diligence efforts should be considered.

Before a pending transaction closes, it is incumbent upon the parties to evaluate how the pandemic hurt (or helped) the target’s business, how its risk profile may have changed (including credit, human resources and supply chain risk, among others), and how long such effects are expected to last. Essential considerations include whether the target has been able to innovate -- perhaps for survival, but also perhaps resulting in increased market share-- and whether the valuation agreed to in a letter of intent should be revisited. If that is not tenable, buyers should review any termination provisions to determine whether any breakup fee would be payable.

Due diligence very often require the target to update its responses as material changes arise, but prudence dictates making supplemental requests to address any issues that may not have been squarely addressed previously. A buyer may reasonably request an extension of any exclusivity period in the letter of intent while digesting new information. . . . .