Agreements documenting conditional private M&A transactions typically set out a detailed regime which applies to the gap between signing and completion. It is common for the seller to undertake that the business of each target company will be carried on in the ordinary course consistent with past practice until completion. More detailed specific obligations are also negotiated.

The spread of COVID-19 means that many of these provisions need to be reconsidered. Actions taken in response to the virus and consequent measures imposed by governments will not be in the ordinary course. A seller will need to consider the extent to which it can comply with changing government restrictions and respond to the evolving pandemic without breaching the terms of the sale agreement. If not a seller may find itself exposed to a claim in damages or the buyer may seek to terminate the sale agreement. Areas of specific concern are likely to include the ability to close bricks and mortar stores, furloughing employees, reducing employee remuneration and the non-payment of rent. The extent to which these are required by applicable law or by any governmental authority will be key.

Sale agreements will provide for pandemics more frequently but the question remains: how many buyers will seek to terminate or renegotiate agreed deals as a result of COVID-19?

Written by Isaac Paine