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M&A Transactions in Times of Covid-19

The unexpected outbreak and rapid spread of COVID-19 forced the government of Ukraine and most other countries to resort to unprecedented restrictive and protective measures. There is no doubt that their immediate impact on mergers and acquisitions during the quarantine period has been profound and will likely cause serious implications in the long run.

Consequently, in the context of the coronavirus pandemic and taking into account the probability of its resurgence in future, it is worth giving careful consideration as to how it can affect each stage of an M&A transaction. In certain circumstances, the virus can become a serious deterrent and even render a whole transaction unfeasible due to considerable associated risks. In other cases, it is likely to trigger certain obligations of parties under the transaction agreement.

Term Sheets 

In the context of a pandemic like COVID-19, both buyers and sellers will rather seek to postpone the negotiation and signing of a term sheet, letter of intent, heads of agreement or a memorandum of understanding until the buyer has completed due diligence and the extent of the pandemic’s impact on the target’s business has become evident.

Furthermore, the content of a negotiated term sheet might be somewhat different from what is normally included in such a document and also reflect some pre-closing and closing conditions, especially long-stop dates and material adverse effect clauses.

The parties are also expected to argue about exclusivity, with buyers aiming to impose and extend this period to ensure that due diligence is properly conducted and sellers hesitating to provide such exclusivity even for short periods.

Due Diligence

The virus has already seriously affected and is likely to affect in future the possibility of conducting the full-scope legal due diligence of a target. While numerous non-essential businesses have been or still are on lockdown, mass gatherings are prohibited and office employees are forced to work remotely, using a physical data room does not appear to be safe and practical. A virtual data room would be the preferred option. In-person management representations and interviews can also be substituted by Zoom meetings or Skype calls. The parties should also adjust their timetables and take into account possible delays in the collection of additional documents.

Furthermore, the crisis is likely to affect the scope of due diligence. In particular, the expert team might need to investigate specifically how present and similar situations impact the target’s business, and such aspects as employment, supply chain risks, legal obligations under key business contracts, financial and tax liabilities, contingency arrangements and business continuity plans, insurance policies and their coverage, and properly evaluate all related legal risks.

Signing the Agreement

The execution of the transaction may be complicated since the simultaneous presence of all the parties involved from different jurisdictions at one place, and notarization might appear problematic due to travel restrictions and social distancing requirements. Thus, the parties should, ahead of time, envisage specific arrangements for the signing, exchange of counterparts and coming into force of their agreement.

Regulatory Approvals

The quarantine that the Ukrainian government has imposed is likely to affect the normal working routines of regulatory bodies and increase the time required to procure regulatory approvals for an M&A deal, such as antitrust clearance from the Antimonopoly Committee or approvals issued by the National Bank of Ukraine. This should duly be taken into account as a factor affecting the completion of a transaction.

Please note that Ukrainian coronavirus-related legislation suspended (for the duration of COVID-19 quarantine) statutory application deadlines and time limits for providing certain public services, including the issuance of regulatory approvals. The duration of these deadlines and terms will be restored from the date when quarantine is terminated.

Specific Deal Terms

COVID-19 and other pandemic-related issues should be sufficiently addressed in the transaction agreement in order to minimize associated risks.

In particular, the parties should consider including in the agreement adequate provisions on how the target’s business will be functioning under abnormal pandemic conditions and how the parties will intend to coordinate their actions during the period between signing and completion. It is essential that the seller and target are able to make crucial decisions to address crisis situations in a timely and effective manner whenever the buyer’s consent is required.

Another key consideration in a pandemic is ensuring that representations and warranties provided in the agreement adequately cover all potential implications of COVID-19 and similar crises related to the target’s operation and the obligations of the parties. Regarding already executed agreements, the parties should carefully analyse whether all provided representations and warranties still hold true in the circumstances of the pandemic and whether any liability issues arise.

The parties should also thoroughly take into consideration whether epidemics and pandemics, and the resulting public restrictive measures, will be viewed and/or included in the agreement as a material adverse change. The latter can give rise to a party’s right to file a lawsuit requesting unilateral termination of the agreement pursuant to the respective provisions of the Civil Code of Ukraine. All relevant elements and circumstances should be taken into account while determining whether a material adverse change clause can apply or be triggered in the event of COVID-19 or a similar situation and, first and foremost, on the extent of the adverse impact it is having on a party.

Force Majeure

Closely related to a material adverse change, there is the issue of force majeure. This is defined as an extraordinary circumstance outside of a party’s control that, in contrast to a material adverse change, only relieves the affected party from liability for a breach of contract attributable to such circumstance. Normally, an agreement may not be terminated due to force majeure unless such option is expressly provided in it.

The statutory definition of force majeure in Ukraine was amended recently to explicitly include a quarantine declared by the government due to an outbreak of an infectious disease (like COVID-19) as one of the force majeure events attestable by the Chamber of Industry and Commerce. Thus, the parties to an M&A transaction can refer to quarantine and ensuing public restrictive measures as a force majeure event to relieve them from liability for breaches of obligations under an agreement.

Transaction Financing

Where a transaction depends on third-party financing, additional challenges need to be taken into account. First of all, the parties may be confronted with a situation of uncertainty with regard to availability of financing and its terms. Apparently, potential lenders will want to increase their fees, add collateral and include additional legal safeguards and conditions to be fulfilled by the target and buyer in order to obtain financing. Moreover, the probability is high that a provider of financing will refuse to finance a particular transaction with due consideration of potential risks that COVID-19 poses for the target’s and buyer’s business.

In such a situation, it is important for the agreement to provide sufficient flexibility of the buyer to walk away from the deal if financing becomes unavailable. Otherwise, the buyer (borrower) should have adequate contractual mechanisms in place to prevent the lender from refusing to provide financing where the buyer is forced to close the transaction. The seller might, in turn, seek to include in the agreement higher break-up fees for a buyer who fails to obtain financing and close the deal.


Overall, the current pandemic is likely to have a serious long-lasting adverse impact on M&A. In these circumstances, parties are advised to carefully consider all COVID-19 and other pandemic-related aspects when planning and implementing a transaction in order to adequately address, limit or allocate relevant risks. In certain cases, it might even appear reasonable to re-consider the practicability of a transaction, to re-negotiate or postpone it until the pandemic and quarantine are over or its impact becomes clear.

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This article was published on Ukrainian Law Firms site and available under the link.

This publication is for informational purposes only. If you would like to learn more or seek legal advice, please contact one of the following or your usual Nobles contact: Alexander Weigelt (Partner), Volodymyr Yakubovskyy (Partner), Denys Vergeles (Counsel).



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