M&A and COVID-19: Due diligence investigation during and after the times of the coronavirus
The coronavirus pandemic is currently affecting the M&A market. Despite all uncertainties and all difficulties parties are dealing with, there are parties who are still considering to acquire or sell a target company at this stage in time. Private equity parties with a good cash position may be looking for investment opportunities while a seller might be looking for the opportunity to divest (part of) its non-core business in order to use the proceeds for the continuation of its key operations.
Conducting a proper due diligence investigation is a key step in the process of an acquisition. What specific considerations should be taken into account when conducting a due diligence investigation during or shortly after the coronavirus crisis?
Given the possible implications of the coronavirus crisis on a transaction, a buyer should conduct an extensive due diligence investigation in order the assess the risks at the level of the target company. Under Dutch law, a seller has the duty to provide information to the buyer, consequently the seller should make sure that the data room contains information concerning the possible impact of the crisis on the target company.
During the coronavirus pandemic and shortly after the corona crisis is over, parties should pay extra attention on the following items:
- Has the board of managing directors of the target company performed its statutory and fiduciary duties to safeguard that the company has acted in the interest of the business of the target company and all its stakeholders? Although it is difficult to factually check whether the board of managing directors complied, investigation can be done into the measures taken by the board of managing directors, such as implementing and maintaining an adequate risk management control system.
- Has the target company performed a risk assessment reflecting the implications of the coronavirus crisis on the (i) operating results and liquidity of the target company, (ii) supply chain disruptions, (iii) revenues of the target company and (iv) material transactions of the target company?
- Are all corporate resolutions of the target company adopted during the coronavirus crisis in line with the statutory requirements? It should be checked whether the general meeting and management board can adopt resolutions without convening an actual meeting and whether the formal requirements that apply were met.
- Is the target company (still) able to perform its obligations under its material contracts? Are the counterparties to these material contracts able to perform their obligations towards the company?
- Do the material contracts to which the target company is a party contain any rights that allow a party to terminate such a contract in case of non-compliance or in event of a force majeure?
- Does the insurance portfolio of the target company cover any damage as a consequence of the coronavirus crisis or is such an event excluded in the policies?
- Did the target company implement adequate rules and guidelines concerning health and safety issues in order to protect its employees?
- Are there any licensing or personal data implications threatening as a result of remote working by employees during the coronavirus crisis and did the target company take sufficient measures to avoid any issues?
Would you like to discuss the implications of the coronavirus crisis on the due diligence investigation in more detail or do you need any assistance, please do not hesitate to contact us.
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