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Managing transactions

COVID-19 will undoubtedly be a concern for businesses in the middle of any corporate transaction, whether you are the buyer or seller. In particular, what sector the transaction is in and the impact of COVID-19 on its underlying fundamentals will have a significant impact on whether the deal remains attractive.

The method of funding and what stage your deal is at should also impact whether the transaction continues or whether it is best for it to pause to see how events unfold. Whatever decision you take, the most important to thing is to assess everything in even more detail than normal.

Here are five things to consider:

  1. Can you manage the transaction on a split exchange and completion basis? As a seller this could give you the opportunity to exchange binding contracts now and at a later date, but as a buyer it could be difficult to pull out after contracts are exchanged.
  2. If you have a split exchange an completion contract make sure there a material adverse change clause included A well drafted clause should make it possible to terminate the agreement, reduce the consideration or include other mechanisms to protect you as a buyer if anything happens that impacts the viability of the transaction.
  3. If you are funding the acquisition from your cash reserves, check your financial projections to see if it is still viable. If bank, venture capital or private equity funding is involved, they are more likely to be cautious so speak to them right away.
  4. If a transaction is at an early stage, consider covering some of the initial due diligence process before pausing. When the time is right to move forward with the deal, you will have made progress so that the legal process is more streamlined.
  5. If a transaction is at an advanced stage and must go ahead, use this time to reassess all documentation, in particular due diligence documentation.

Frequently Asked Questions


We are in the middle of a transaction. Can we pause it and pick it up again later?

Yes, depending on the type of contract and the stage of the transaction.

If you are simultaneously exchanging and completing the contract – and subject to any other agreements such as heads of terms, or an exclusivity agreement – there is no obligation on either party to proceed. In this case it is entirely possible to hit the pause button on a deal and resume it later when the future is clearer.  If you are the buyer, this is likely to be the safest option.

Equally, you and the other party want to commit before pausing to avoid potential issues with delay, you can exchange contracts to legally bind and set completion at a later date.

If you take this split exchange and completion approach, you should include a material adverse changes clause in the contract. This will provide important protection and entitles the buyer to terminate the contract or reduce the purchase price if the conditions of the clause are met.

What is the best way to fund our transaction in light of COVID-19?

Using the target company’s cash reserves or the buyer’s own cash are the best and quickest ways of funding a deal in the current environment.

External funders, such as a bank’s private equity or venture capital, are likely to exhibit a cautious approach at the moment, the likely upshot of which is the transaction having to wait for now. Some funders may be willing to move forward, but they may alter the terms on which they first agreed to lend or invest. The key is to talk to them to understand their position.  

While cash is king, a quick deal is not necessarily a good deal. At the moment you must check your cash projections carefully, whether it is your own cash reserves or the target company’s.

Time spent reconsidering the due diligence infomration provided, and really investigating the figures, will be time well spent.