Up until two months ago, the global recession seemed far-fetched and many people believed that their countries wouldn’t be affected by COVID-19. Fast-forward to today and there are travel bans, cancellation of sporting events and the stock market in freefall. Moreover, retail shops and deli chains like Carluccio’s entered into administration, and airlines are struggling.
Does that mean a global recession is coming? Will it be the biggest in history? This is open to discussion but big giants are struggling. Ryanair would fly less than 1% of its schedule in June. Deliveroo is struggling too, and Competitions and Markets Authority (CMA) who once rejected Amazon’s bid to invest in the company now provisionally clears Amazon’s investment due to COVID-19 impact.
Challenges in M&A
Due diligence
Buyers will want to understand and evaluate how the virus might affect the target company and should consider more specific due diligence. In addition, the solvency of the target business should also be reviewed to see if the business is in a position to withstand any liquidity issues in the aftermath of the outbreak (especially in sectors most obviously hit such as hospitality, aviation, retail, etc.).
Representations/Warranties
If representations and warranties have already been given, the seller needs to check that it has not inadvertently breached any of them or that they can still be repeated at closing, if applicable, without any additional disclosures being made. If the agreement is still being negotiated, a buyer needs to consider whether it should include some COVID-19 specific warranties as a way of eliciting more information about any risks and potential impacts of the virus on the target business.
Completed deals
Parties must consider how they want to limit, or define, the risk allocation between them or indeed proceed at all until the impact becomes clearer.
Opportunity arises
Flexible working
The first and most obvious way in which the pandemic could affect the industry longer-term is in flexible working. Already a buzzword throughout the profession, many firms offer flexible working arrangements. Yet, prior to the current health emergency, there were numerous reports of senior management not trusting employees to work from home, as well as a persuasive culture that shames those that want to take more flexible options. That may now change.
Mental Health
The mental health of lawyers would likely improve, recruitment could look beyond just the candidates able to work long hours in a city centre office, and there are potential cost savings for firms that reduce their real estate requirements.
Video conferences
During this crisis, even courts are moving to video conferences methods as an interim salve. This could show that, in many instances, showing up in person was never absolutely necessary. If firms utilise all the technological tools available they can save up a lot of time to do more important tasks, and in this industry, we know that time is money.
Comments
COVID-19 will not only be a complicating factor at each stage of an M&A transaction but also in trade, finance and property transactions as the UK property sales are on hold. It is interesting to see how the whole situation will unfold and if a great recession will come. However, keep in mind that as every success comes from struggle, every opportunity comes from a challenge.
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