As coronavirus (COVID-19) continues to spread globally, precautions such as event postponement, travel cancellations and avoidance of crowds are having a significant economic impact, with many retailers being hit especially hard. After several years of solid market performance and economic growth, panic surrounding COVID-19 has resulted in volatility and significant drops in the stock market, creating less favorable economic conditions for M&A activity.
While many firms began 2020 feeling optimistic about another strong year for deal activity, the effects of COVID-19 have dampened those expectations, with data from Dealogic showing that global M&A activity is on track for its slowest two months in almost 15 years. Currently, some new deals are still being announced; however, ongoing effects from the COVID-19 outbreak may threaten existing negotiations or cause companies to abandon plans to engage in future transactions. Many sellers may choose to delay sale processes, but market conditions will also create unique opportunities for some buyers. Decreased valuations created by declining markets may allow for strategic acquisitions at discounted prices by companies and private equity firms that have sufficient cash on hand.
For companies that are currently either negotiating M&A transactions or in the process of closing pending transactions, there are several considerations created by the COVID-19 outbreak, including the potential delay of governmental and regulatory approvals and possible triggering of material adverse effect provisions of purchase documents or of force majeure provisions in material contracts of target companies. Ultimately, it remains to be seen whether these conditions are only temporary and economic recovery will happen as the spread of COVID-19 is controlled or whether these events could signal the start of a longer-term bear market or economic recession.
Additional resources on the legal implications of COVID-19 for businesses are available here.