M&A Due Diligence During a Pandemic – Are You Ready?

Michael Brown
Posted February 24, 2021 Category: Businesses
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In Spring of 2020, COVID-19 brought shockwaves across the business community and shook the global economy. Business transactions and commercial activity seemed to screech to a halt. Fast forward to the present and the pandemic continues to play a major factor in business decisions, however, we are seeing an uptick in certain transactions and commercial activity which were previously put on the back burner less than a year ago; in particular, mergers and acquisitions.

If you are in the market to either buy or sell a business, one thing is for certain, there is an increased emphasis on thorough due diligence.

Two key due diligence considerations during a pandemic

The pandemic not only reinforces what could be called “typical” due diligence tasks, it has increased the emphasis on certain due diligence items that business owners should turn their minds to: (i) cyber security and (ii) third party contractual obligations and rights.

Cyber Security – The pandemic spurred a sudden increase in virtual, remote and online work environments. Some businesses were prepared; others were not. As a result, there is an increased concern over cyber attacks and breaches.

  • If you are a buyer, you should spend extra time with your advisors to review and assess the target’s cyber security infrastructure and policies to ensure the risk of cyber attacks are at a minimum post-closing.
  • If you are a seller, you should be prepared to disclose these items upon request by a potential buyer.

Contractual Obligations/Rights –  The pandemic caused some businesses to default on their contractual obligations or forced them to exercise their contractual rights, such as invoking a force majeure clause (if such clause was included in their contract – you can read more about force majeure clauses a previous blogs here).

  • If you are a buyer, you should spend additional time with your advisors to review each of the target’s material contracts closely to ensure all are in good standing and that you understand everyone’s obligations and rights post closing to limit any surprises.
  • If you are a seller, you should be prepared to disclose all material contracts and be aware of any defaults or issues that, if not disclosed to a potential buyer ahead of time, may increase your liability post closing. 

Are you ready to sell or buy a business?

If you are a buyer, take the time to conduct a thorough due diligence process with your trusted advisors to ensure you know exactly what you are buying. You want to limit any post-closing surprises. Its worth the time to do it right.

If you are a seller, be prepared for a lengthy due diligence process undertaken by a smart potential buyer. Speak with your trusted advisor to understand the process before it begins. The more prepared you are to respond to anticipated due diligence requests, the smoother the process will be, and the chance of a successful sale will increase.

If you have any questions on the due diligence process when buying or selling a business, or any other corporate or commercial matter, please do not hesitate to reach out to myself or any member of our experienced business law team.

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Michael Brown
Posted February 24, 2021 Category: Businesses

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