Episode 2: Deal process – impact on data room & management presentation, due diligence, negotiation process
Data room & management presentations. During the initial stage of any transaction, the availability of the target’s management to supervise the gathering of all documents required for the due diligence and to interact with the potential purchasers to address any preliminary concerns they might have is crucial. With management’s attention being caught by the continuous need of the businesses to comply with the newest regulatory constraints and to adapt to new business models, we expect its availability for preparing the transaction to be more limited than before. Such will probably translate into longer periods necessary for the preparation of the data room, a need for the advisors to reconsider their due diligence questionnaires and to focus only on the essential topics and very limited access to management being granted to potential purchasers. We will probably also see online management presentations (if at all) and a significant decrease in the use of physical data rooms as opposed to virtual ones (even for very sensitive documents).
Due diligence. The due diligence exercise will also need to adapt in order to ensure that the potential impact of the Covid-19 outbreak is covered. Obviously, the most significant impact will be on the commercial due diligence. On the legal due diligence side, depending also on the business of the target, increased attention will probably be paid mainly to the following areas:
- the contractual infrastructure (including the wording of the already well-known force majeure and hardship clauses) and its suitability for the current environment;
- employment policies and the target’s exposure from a personnel perspective;
- regulatory compliance and the timely and properly implementation of all measures required by law;
- GDPR compliance and the target’s ability to process its employees’ and visitors’ health data;
- target’s financial exposure and covenants included in the financing agreements that might prove difficult to observe;
- business insurance and other aspects that might sustain the target’s ability to overcome the consequences of the outbreak.
Negotiation process. The current quarantine regime will most likely also shift the negotiations approach from all-day meetings in large conference rooms filled with both business people and advisors back to the exchange of drafts and conference calls, which were generally used only in the early stages of the M&A deals. But will there be new sensitive negotiations topics resulting from the Covid-19 outbreak? Probably yes, as we will detail in the following episodes. Stay tuned.
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