Prior to beginning an M&A deal in the UK during the Covid-19 period, it is of paramount importance to conduct due diligence of mergers and acquisitions of British companies. Dramatic changes in the business caused by the coronavirus outbreak and the disruption of normal business activity have made due diligence a critical task for any entrepreneur.
Commercial rent issues
Since the beginning of the pandemic, the British authorities have motivated businesses to implement remote methods of work. On the one hand, such measures are aimed at protecting the health and lives of people, but on the other hand, it has had a drastic negative impact on many businesses, including retail.
While much of the commercial comprehensive due diligence procedure focuses on the financial implications of changes in business processes, the legal due diligence of British companies focuses on:
- revision of lease agreements, negotiations on rent;
- minimization of negative consequences caused by force majeure on the part of the landlord.
As the majority of tenants had to revise the terms of existing commercial leases many have sought professional legal advice to revise the terms of contracts during the pandemic.
Uncertain economic prospects will require additional due diligence of insurance coverage agreements for British companies.
Entrepreneurs in various industries are now assessing how business efficiency has been affected by the shift of employees to remote work and significant restrictions on people's mobility. The sectors related to the provision of services to customers "on the ground" suffered the greatest losses. Travel and tourism will remain "on pause", and the hotel and tourism sector will experience maximum pain. The livelihoods of workers associated with these sectors will decline. All that will result in a wave of claims and lawsuits from companies that will demand compensation for the damage caused by the pandemic and the scope of these claims are impossible to predict.
According to experts, the demand for other types of business insurance will increase. For example, insurance against cyber risks. This is due to the fact that after the pandemic, many companies have decided to move to a remote format. Accordingly, there is a need to protect personal data.
The market in principle has no experience in insuring pandemic risks. And even more so in the conditions of "ubiquitous quarantine", which business has never encountered.
Due diligence procedures in M&A transactions in the UK should focus on the company's compliance with Covid-19 legislation regarding staff health and safety. When a company has to lay off employees, it is necessary to take into account compliance with the law and the increased risk of claims from the fired employees.
Insurance companies may face more serious insurance requirements from public works workers, such as healthcare workers. Carriers can also see new lists of claims from back-office workers who have been infected by colleagues. On the other hand, factories, businesses and offices operate at reduced capacity or remotely, which in turn reduces the number of work-related or work-related injuries. If economic activity declines, it can also lead to lower insurance premiums due to unemployment.
The business is currently receiving funding from the UK's coronavirus pandemic job preservation scheme. Considering this aspect is essential when carrying out due diligence of mergers and acquisitions in the UK.
Working capital and finance
If you are planning to start a merger transaction in the United Kingdom under Covid-19, it is commercially important to understand whether the target business is facing increased working capital and liquidity issues. Due diligence of British companies should take into account whether the target business depends on any government funding or tax benefits as a result of Covid-19. The solvency of the target object must also be carefully analyzed during the financial audit.
When conducting mergers and acquisitions in the UK during Covid-19, it is necessary to find out to what extent the target company's IT systems have been adapted to the effects of the pandemic. This is largely due to the creation of technical conditions for online work with customers. It is also important to pay special attention to the inspection of emergency recovery systems.
In this unprecedented situation, it may be quite challenging for the M&A deal participants to identify and reduce potential risks. However, the ability to anticipate potential problems as well as to address such issues in agreements does exist. The above priorities and measures to address them can help make M&A agreements more flexible to fit the needs of both parties involved.
Our company's legal professionals provide clients with advice on managing M&A transactions in the UK during the pandemic.