M&A and COVID-19

The focus on cybersecurity in M&A transactions will only be intensified as a result of COVID-19. Companies that introduce new remote work programs or expanded their existing ones will be more vulnerable to hackers. Buyers will want to be briefed any new policies, and the legality of any restrictions imposed on employees will be scrutinized. Acquisition agreements typically contemplate purchase price adjustments, with a target’s working capital measured against a peg based on historical information. That historical information may not be a good guidepost if the target’s financial situation has been, or is expected to be, impacted by COVID-19. The parties will need to agree on how the pandemic will impact capital, which won’t be easy given the unpredictability of the crisis. Sellers should be prepared to answer questions about their insurance policies for losses attributable to COVID-19 and what actions they are taking to preserve their rights under those policies. Buyers typically have consent rights over certain actions taken by or on behalf of targets between signing and closing. Expect sellers to ask for an exception to this general rule so they can take actions to quickly respond to the impact of COVID-19. Buyers may resist in respect to actions that could have a significant financial impact, or alternatively, ensure that the purchase price is adjusted to account for that impact.