In the Covid-19 new scenario more doubts and challenges affect M&A deals in two big areas; In the due diligence process and in the Agreement. Below we will address key issues for special attention, in addition to general matters before the Covid-19 oubtreak:

1) Due diligence:

At first, additional and enhanced requirements and analysis are needed, for instance:

Target business financial position:  Changes may affect the business purposes itself: come companies have changed all/ part of their activities by new activities to meet emergency market or governmental demands having to reconsider business reorientation. Cash-flow difficulties may derive in insolvency; Company debt composition and renegotiation possibilities require special attention (commercial, financial with shareholders, etc.); Business plans to be revised, adjusted to the new context having to include contingency plans. Contingent liabilities: in addition to those of the Covid-19 impact, a crisis of this size usually brings out to surface hidden contingencies from pre-Covid-19 time. Assets market value falls rapidly, .. and many other issues, all of which raise huge doubts on continuity and financial needs.

Facilities:  State and conditions of plant and equipment; maintenance costs and lease rent payments: must be addressed without delay to confirm they do not hide contingencies. Travel restrictions will not help.

Customers:  Orders plummet, payments are delayed; long-term supply agreements are breached, or put to re-negotiation;

Suppliers: Supply failures, delays, reduction of capacity to supply, or to adapt.

Employees:  Optimize efficiency and face salary costs cuttings and even redundancy programs. Temporary layoffs and/or definitive redundancy programs implemented without qualifying for the legal requisites may be challenged by the authorities and even imply charges for fraud.  Health and safety plans must ensure, warrant to protect employees in the light of new regulations: working center conditions, home-working IT systems security/ control vs privacy, and most importantly, to what extent is the Covid-19 disease a work-disease.. .

IT and Data security: Use of IT systems increases significantly, and the legal requirements must be strictly followed (remote work, on-line sales, consumer rights, personal data protection)requiring strong infrastructure.

Insurance: Company must keep updated policies, maintenance obligations on insured assets, check coverage for damages and claims e.g. business interruption.

Taxation; governmental aid and public/supported financial facilities: fulfillment of requisites -otherwise the risks maybe not only to return amounts received, but huge penalties including crime offense.

Corporate compliance: Companies compliance programs and policies are not suspended, to the contrary: as the risk of a law breach and non-compliance increases and companies may face severe sanctions – in Spain the company itself can be held liable for criminal penalties thus adding contingent liabilities. Problems at the level of the parent company and group entities and related parties, under similar or worst difficulties becoming insolvent or bankrupt, etc. will certainly not help.

2) The Agreement:

Sellers (i) seek to qualify R&W on past conduct of business during the COVID-19 outbreak period where difficult decisions may have been made, even basic ones such like “the company is in compliance with the laws and tax obligations..” , offer many disclosures in separate schedules, that should be specific, rather than vague.. and (ii) be reluctant to grant forward-looking R&W in a scenario of uncertainty, and (iii) seek to introduce Material Adverse Change clause to qualify future effects of R&W. In sum, the seller will try to give boxed R&W, because of the Covid-19 impact.

Buyers will be in a stronger, bargaining position now, but investment in an uncertain time. Must check legal restrictions on foreign investment (now increasing). More than ever needs to assure, particularly through due diligence (financial, tax, legal, facilities- plant, equipment conditions, etc.) the reliability of financial statements and budgets. M&A insurers after the outbreak exclude “Covid-19 general or systemic risk” caused by this, focusing on the results of due diligence and how R&W are drafted. Buyer-protective MAC clauses associated with Covid-19 more difficult as a way to exit a deal.

Buyers’ key concerns refer to business target’s ability to comply with law, regulatory or permit requirements, the default of business partners, facilities lease early termination, cash-flow difficulties, threatened claims and litigation etc.

Depending on the outcome of due diligence, tough discussions will arise, but at this point, the parties will use negotiation tools, like price reductions taking risks, or reconsidering payment terms of consideration, price retention escrow, or requesting collaterals for contingent liabilities.

If, an interim period, Buyer should monitor closely conduct of business with fluent communication; Covid-19 related effects will no longer be deemed force majeure, material adverse change or hardship cause, though still, the new worldwide crisis-recession may bring up unexpected law reforms (e.g. restricting foreign investments) altering dramatically circumstances beyond parties’ control.