Remote due diligence investigations and unique considerations for mergers and acquisitions during the ‘new normal’.
06 Jul 2020
The Covid-19 pandemic and subsequent lockdown measures has exponentially increased the need for businesses to commence and finalise deals remotely.
While in many instances, businesses have pressed pause on mergers and acquisitions (M&A), for others the uncertainty of the current climate has increased the need for liquidity and many businesses are contemplating the sale of their assets or businesses. For investors, this may be a perfect opportunity to enter the market and take advantage of the competitive pricing and diversity of options. It is vitally important for both sellers and investors to conduct a thorough due diligence prior to any M&A transaction so that the unforeseen may be planned for – the Covid-19 pandemic has only made this more evident.
The rise of financial technology has made the possibility of conducting a remote due diligence almost entirely possible through virtual and secure data rooms, virtual meetings, cloud sharing documents and AI technology which can predict bidder behaviour. We expect that the range and availability of these products will continue to rise as the world moves towards conducting remote operations out of necessity, cost saving and convenience. Unfortunately, there are some aspects of a due diligence which should not be digitally substituted, for example conducting a physical on-site inspection may be absolutely necessary in many M&A transactions. However, it is clear that the bulk of a due diligence is capable of taking place remotely.
There are a variety of new considerations which businesses must be aware of when contemplating a M&A transaction and conducting due diligence investigations, which include:
• contractual review of force majure and suspension clauses;
• any period of business interruption as a result of the pandemic and the effects thereof;
• potential insurance pay-outs;
• fulfilment, or non-fulfilment, of contractual obligations;
• ability to fulfil contractual obligations moving forward;
• compliance with the Disaster Management Act, and subsequent regulations;
• compliance with labour law obligations;
• an assessment of the purchase price and potential pricing adjustments; and
• considering a material adverse change clause in the M&A transaction.
The world of M&A transactions has been, and will continue to be, substantially affected by the Covid-19 pandemic as well as the measures introduced to limit its effect. This presents a unique opportunity for both sellers and investors to enter the market and structure the process in innovative ways. Eversheds Sutherland is well equipped and experienced to offer a full complement of legal services relating to M&A transactions and legal due diligence investigations. Contact us should you require any assistance in this regard.
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