Covid-19 – Additional considerations when undertaking due diligence

Due diligence takes many forms (legal, commercial, financial/tax, site visits, surveys etc.) and is carried out by the buyer and its team of advisers prior to completion of the transaction occurring.

The key aims of any due diligence exercise are:

• to obtain sufficient information in order to verify, as best as possible, that the target business or company is worth what the buyer has agreed to pay;

• to obtain a thorough understanding of the various component parts of the target business or company the buyer is seeking to acquire; and

• to identify any legal or commercial issues in the target business or company prior to the buyer entering into a legally binding agreement. This gives the buyer the opportunity to consider the range of options available to it (for example, a price chip or contractual protection in the form of a specific indemnity in the contract) depending on the materiality of the issue identified and the respective commercial bargaining positions of the parties.

For any buyer considering an acquisition following the outbreak of Covid-19, it will be particularly important to undertake additional due diligence focussing on the impact of the pandemic. In a very short time frame there have been significant changes in legislation and regulation forcing businesses and companies to adapt, as best as they can, in a challenging and unusual climate.

By way of example (and this is by no means an exhaustive list), Covid-19 specific due diligence would focus on:

• employment – increased absence (due to Covid-19, self-isolation or due to employees being clinically vulnerable), furlough and health and safety (Covid-19 secure guidelines);

• commercial contracts and trading – business continuity plans, supply chain resilience and the implications for any existing contractual arrangements;

• regulatory compliance – compliance with applicable emergency laws;

• accounts and financial information – liquidity and solvency, government grants and financing arrangements; and

• tax – VAT deferment.

The Corporate Finance team at Lupton Fawcett have lots of experience of all types of corporate transactions and helping buyers and sellers navigate the due diligence process (pre and post Covid-19).

Feel free to get in touch for a no obligation chat by contacting Sarah Webster on 0113 280 2156 or sarah.webster@luptonfawcett.law