Since its outbreak, the coronavirus pandemic has been interrupting, and in some cases hindering, companies’ operation. It has also influenced the way purchasers & sellers prepare for & conclude M&A deals. Therefore, governments of different countries, and most notably Great Britain, the PRC, Canada & UAE, are now working hard to give impetus to FDI in their economies. In an attempt to gain some important clues, they are also looking into the influence of the COVID-19 pandemic on concluding M&A deals worldwide.
The effect of the COVID-19 pandemic on concluding M&A transactions worldwide can hardly be underestimated. Among other things, it has greatly affected DD, transactions’ structuring & the formation of a purchase price. Because of the pandemic, parties to M&A deals should take into consideration numerous issues, both legal & economic ones, prior to concluding M&A deals during the coronavirus pandemic.
Not only has the COVID-19 pandemic affected countries, it has also impacted entire regions. And as its first wave is gradually weakening, enterprises will have to learn to comply with the new rules & regulations.
How COVID-19 Affects M&A Deals Worldwide
The first consequence that companies worldwide are facing includes longer deadlines for M&A transactions. They are forced to spend more time on negotiations & conclusion of M&A deals. They also have to consider the effect the pandemic is having on NWC & prospects of economic recovery.
Because of the delays in the collection & preparation of accounting documentation, purchasers need to spend more time on DD of foreign companies. Those of them who cannot personally perform the DD process try to renegotiate the conditions of a transaction by considering increased risks connected with it. Renegotiating an M&A deal may require being up to date with the current news, too. Let’s take a look at some of the recent developments in the legal realm connected with the coronavirus pandemic:
- Resolving disputes in the PRC during the coronavirus pandemic: Due to resumption of court operation, it is now possible to file lawsuits for backpaid salaries or late rent.
- Because the UAE has no labor law, there is a risk of buyers in an M&A deal being sued for arbitrary sacking.
- Due to Brexit, resolving issues with supply chains has become very relevant in Great Britain. The coronavirus pandemic can cause them to become the cause of even greater concern.
- In France, purchasers are going to have to take into account how COVID-19 can impact health & safety of a company’s personnel.
Renegotiating M&A Deals Under the Coronavirus Pandemic
Purchasers who already completed DD should also worry about the coronavirus pandemic impacting structure deals. Risks related to supply chains, market volatility, travel-related restrictions - all this can lead to a review of previously agreed terms of payment.
When it comes to negotiating the value of a target company, negotiating parties can decide in favor/against establishing a purchase price by taking into consideration its most recent financial statements.
As business and markets are beginning to adapt to the coronavirus pandemic, the number of M&A deals is starting to gradually grow. Given the current uncertainty, purchasers & sellers must be mindful of the risks involved in a company becoming an object of investment. Also, they should consider the socio-economic situation & legislation in a specific jurisdiction.
Despite certain types of transactions being common to many jurisdictions, understanding local specifics is of paramount importance. Each transaction poses certain challenges & the parties involved should deal with them by using risk reduction strategies.
Need a consultation on the regulation of international M&A transactions during the coronavirus pandemic? IQ Decision UK is the answer.