The Impact of COVID-19 on M&A Transactions - Part 1: Due Diligence and Operational Issues

The COVID-19 pandemic has caused severe disruption, distress and uncertainty for companies across almost every industry. While this initially resulted in a substantial slow-down in the M&A market, transactional activity is expected to accelerate in certain areas as the economy begins to recover; for example, we expect to see more carveouts by companies that seek to divest non-core assets, acquisitions of distressed companies, financings of independent companies that may have liquidity issues, and divestitures or joint ventures by private equity funds that seek to exit investments or bring in new partners. Prospective sellers and buyers alike should have an increased focus on specific considerations as they evaluate new opportunities during and post-COVID-19.

Due diligence in connection with ongoing and future M&A transactions will have an increased importance, due to substantial disruptions to businesses that may not have previously been accounted for in a target’s financial statements. Given the expansive nature of COVID-19’s impact on businesses, these due diligence considerations are likely to be significant beyond the immediate triage measures a company may have taken in response to the pandemic...

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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