M&A - updated on Mar 18 at 14:26 pm
EFFECTS OF COVID-19 ON M&A TRANSACTIONS
Business combinations and M&A transactions will probably be affected by the dissemination of the novel coronavirus. The uncertainties of these effects shall impact these transactions on all their phases, bringing up several concerns to be addressed in the strategy, financial analysis and legal protections to be contractually created or adjusted.
The balance sheets supporting the pricing of the deal, the inclusion of a new due diligence phase depending on the case, as well as the reassessment of the extension of the protective contractual clauses (such as the MAC-MAE clauses – material adverse change and material adverse effect clauses) are mandatory steps to be taken for those who are starting or already negotiating these transactions.
New issues shall be raised, especially potential effects related to the economic-financial balance of the deal as a whole, payment capability and excessive exchange rate variation, which shall be already take into account for signed transactions and before their closing.
The formation of a crisis committee is very recommended not only to protect the deal, but also for all parties involved, mainly for the post-merger integration phase, aiming at enhancing all the projected synergies and at avoiding undesired controversies and disputes.
All live and personal meetings among the parties and the schedule of all activities shall be adapted according to this unexpected situation, which shall be considered an event that may cause the adjourning of all legal obligations, with the possible exception of pre-established penalties, according to the Brazilian law or a specific contractual definition.
In deals involving publicly-held corporations, either as a result of its signing or before its closing, the corporation shall decide if these impacts need to be made public through a fato relevante (most important official public communication mandatory for these corporations), considering the terms defined by the Brazilian Securities and Exchange Commission (CVM) rulings, potentially affecting the investors´ decisions to purchase or sale securities and the respective quotation. In this case, the investor relation officer (and secondarily all other officers and the controlling shareholders) shall make this official communication as determined by CVM.
To sum up, it is strongly recommended that the parties reassess the schedule, events, terms, and conditions of all their agreements in a business combination/M&A transaction, aiming at reducing the effects of the COVID-19 outbreak. One shall convert these uncertainties into calculable and mitigable risks, and which shall bring more concrete inputs for the complex decisions that need to be taken at this moment.
At last, it is very important that all companies, regardless of their business association form, to carefully analyze the effects of the COVID-19 outbreak on the live and personal meetings that normally take place at this time of the year, especially among board members and shareholders. A case-by-case assessment is recommended so that the legal duties of the management and controlling shareholders are fully observed, as well as the essential rights of all shareholders and other stakeholders´ interests are respected.