The impact of pandemics was an important factor in the short-term settlement of transactions, as were other factors influencing M & A transactions. While past crises have affected M & A deals, the focus has always been on how they are developed and negotiated, but this time it was different.
As key players work remotely and adapt to a changing environment, this has become even more critical. M&A clauses were highlighted as a provision that the parties used or considered to renegotiate or withdraw a transaction.
This fundamental position was reflected in the decision of the Hong Kong Takeover Panel to acquire advertising chain WPP Group. In its decision, it sought to abandon the M&A clause for its target business because the prevailing market distortion resulting from the terrorist attacks in New York had led to an M&A for the target business. The decision of the UK Takeovers Panel rejected this argument but pointed out that to invoke M&A clauses effectively, changes must be sufficiently severe to strike at the heart of a company and cause significant disruption to its operations.
The long-stop date clause applies if the terms and precedents to which the Agreement is subject are not fulfilled or repealed within a specified period (if applicable). The block box clause and the block box clause are the two most commonly used clauses in the global M & A market to determine the purchase price of an M & A transaction.
Given the COVID 19 situation, it is likely that buyers will seek to negotiate shorter or longer hold dates in the future, particularly with MAC clauses. A vendor who executes a transaction for the near future – the term will want to be longer – can thus recoup his lost value over time. If you have confidence in your buyers and the strength of their business, the seller should consider accepting a purchase price that will be paid in part as a share repayment to recover some of the value after the close of business.
Given the scenario, these clauses are likely to be hard-negotiated and focused, but not necessarily price. Negotiations can focus on several options to bridge the valuation gap between buyer and seller.
If the seller were to push for a narrower M&A clause, it would appear unlikely that the buyer would insist on registering an M&A event, especially in the event of a blockade and/or closure of international borders. To do so, the parties concerned would have to agree on the specific impact of the COVID 19 crisis on the transaction. Cross-border transactions would also be affected if the closure led to the closure of the international border.
Some parties may turn away from the transaction and appear to be getting away with a lower valuation than before COVID was formed. In other cases, where the impact is slightly less severe, the buyer may want to reconsider the valuation. Some may seek a downward price adjustment, but there is no direct impact on the business.
Given that January 2020 has seen an all-time high for the Indian stock market, this could become particularly relevant as buyers may now want to reconsider their valuation. In the event of an outbreak of the coronavirus COVID-19, we will consider related issues that the parties should address when considering an M & A agreement.
To obtain more certainty about the final results, the parties should review and revise the relevant provisions of the Takeover Agreement, conduct additional audits and perform due diligence.
However, whether the impact of COVID-19 constitutes an M&A for this specific acquisition agreement will depend, inter alia, on the facts surrounding the target company. The seller should consider including this information in the data room if the disclosure is required in connection with COVID- 19. However, the acquirer is not obliged to close if at any time, the target undertaking suffers a material impairment of its warranty of representation leading to anMAE or if it breaches any of its repeat warranties.
An already protracted regulatory merger and approval process are facing additional challenges due to delays caused by pandemics and resulting backlogs. Compliance with conditions and precedents may take longer, in part because of the effects of the pandemic. The Competition Commission issued a media statement on 24 March 2020. Once a lock-in period has been announced, operations can be scaled back or, in some cases, even halted for failing or distressed companies.
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