Cross-Border M&A in the Age of COVID-198 May, 2020
Navigating cross-border M&A transactions has always been fraught with nuances and challenges, but what does it mean when the global economy is affected adversely by a worldwide pandemic? Social distancing and a remote workforce have significant implications for almost every aspect of the cross border M&A transaction lifecycle, including a shakeup of the order in which that lifecycle traditionally unfolds.
Economic stress means that the pace of deals has slowed, which increases buyer leverage and could result in larger valuation gaps between buyers and sellers. This could result in more scrutiny of reps and warranties clauses and more emphasis on earnout structures. At-risk targets may be more likely to implement precautionary defensive maneuvers, such as poison pills or staggered/classified boards. There is also the potential for an increase in bankruptcy-related deals (363 asset deals). Economic uncertainty also contributes to deal volatility, making getting to a signed deal a greater challenge.
During the pre-deal phase both parties may find that lack of in-person meetings with management may impede deal progress or interest. As a result, sellers may find the need to populate an online data room much earlier in the process than they normally would.
During negotiations there will likely be heightened valuation challenges. Will historical financials carry weight, or are the distorted COVID-19 financials the new norm? Other negotiation factors impacted might also include specific indemnities for COVID-19 and closing logistics when done remotely.
Under normal circumstances, executing corporate documents for purposes of implementing international corporate transactions is not an overly complicated process. Some documents only need a simple signature, while other documents need to be notarized, apostilled and/or legalized by an embassy. However, due to the many “shelter-in-place” policies being put in place by various federal, state and local governments around the world to prevent the spread of the coronavirus 2019 (COVID-19), the process of executing corporate documents has changed.
When a corporate document needs to be notarized, the general rule is that the signatory must personally appear in front of a notary, who acknowledges that the signatory personally appeared in front of him or her and executed such corporate document. Today, most signatories to corporate documents, such as directors and officers, are now working from home and may not want to be within six feet of another person. There are workarounds, but they should be considered early in the transaction process.
To further explore the myriad impacts of COVID-19 on every phase of the cross border M&A transaction process, ShareVault has assembled a team of experts on cross border deals to discuss how the pandemic is affecting the way these deals are done.
Some of the points of discussion during this web panel discussion include:
- The increase of bankruptcy-related transactions (363 Asset Sales)
- Heightened sensitivity on negotiating force majeure clauses
- Material adverse effect or change clauses
- The impact on Reps and Warranties
- Working from home / data security technology
- Closing conditions related to the economic effects of COVID-19
- Increased activity from a target point of view on defensive maneuvers that may be taken in order to protect an unexpected target
- Increased closing complexities when sheltered in place
Recording of the webinar is now available, please access it below.