Covid-19 & Corporate Transactions

posted by KeithDaniel

The impact of Covid-19  

The Covid-19, or Coronavirus, pandemic has elicited profound and decisive action from national governments across the globe. Lockdown measures imposed by the UK government to curtail the spread of the virus have severely impacted every aspect of life. Business and the economy have been no different. Businesses nationwide are grappling with previously uncontemplated issues, as they try to mitigate the impact of the virus on their operations, whilst continuing to function and make important commercial decisions.

We have had several enquiries from clients that are undergoing, or are contemplating, corporate transactions. Therefore, we have set out what our clients can do to limit their exposure to risk when negotiating deals: 

Due diligence

Due diligence will be more important than ever for Buyers, as they try to limit the risk of a transaction in the context of Covid-19. Teasing out any impact the outbreak may have on the Target company’s value will be key to securing the right deal. Some specific issues Buyers may need to consider are the impact of the virus on the Target Company’s:

  • Financial position, prospects and liquidity;
  • Commercial contracts and suppliers;
  • Use of commercial premises; and  
  • Employee obligations

All have the potential to adversely effect the value of the Target, in which case the Buyer may have scope for negotiating the purchase price or restructuring the deal, to limit its exposure to risk.

Warranties

Buyers can reduce the risk of a transaction by requesting, or negotiating, Covid-19 related warranties, to elicit more information about the potential impact on the Target company’s business. This will also help protect the Buyer from any unexpected or unforeseen effects of the virus, by ensuring a remedy is available in the event the Target business is not as “Covid-19 proof” as promised by the Seller.

Conversely, for the Seller, disclosures relating to the warranties need to be considered carefully, to ensure that all potential implications of this virus have been addressed. This may include consideration of any recent changes to legislation as a result of Covid-19 and their likely effect on the Target business. This will be key to limiting the Seller’s risk of exposure to warranty claims in a pandemic prompted sale.

Executing remotely

In an effort to curb the spread of the virus, parties may be considering the possibility of executing the share or asset purchase agreement remotely. You can find our previous discussion on executing documents electronically here

Fortunately, the Law Commission has confirmed that an electronic signature is capable in law of being used to execute a document (including a deed) provided that: the person signing the document intends to authenticate the document and any formalities relating to execution of that document are satisfied. Therefore, providing appropriate steps are taken, it is permissible for parties to execute remotely and complete the deal from the relative safety of self-isolation.

Contact us

Here, at Berry Smith, we have a dedicated and specialist Transactional Business Services Team. Our team provides the right level of expertise and experience, at a realistic cost and our service is always matched to the scale and complexity of the deal. If you need advice on any anticipated corporate transactions or wish to discuss matters on a confidential, no-obligation basis, then please contact Andrew Bound on ABound@berrysmith.com or call 029 2034 5511 and ask for the Corporate team.