Regional updates: Impact of Covid-19 on SPAs


Despite the outspread of Covid-19 certain M&A transactions continue to be negotiated with a view to closing. We intend to share a few examples of how parties approach certain typical issues around seller´s warranties now that the first implications of Covid-19 on the wording of SPAs become visible in some transactions.

These examples are not to be seen as representative or universal, but reflect our experiences from a limited number of transactions within the last couple of weeks. We still believe that including certain clauses relating to or subject to the impact of Covid-19 might become a common practice for those transactions which are supposed to be signed/closed prior to a more relaxed state of this pandemic situation. 

We see sellers seeking for limitations/qualification due to the consequences of Covid-19 of certain warranties such as:

  • Warranties regarding the financial situation of the target  - no material adverse change (MAC) since last accounts or other reference date
  • Warranties regarding conduct of the target’s business in the ordinary course of business since last accounts or other reference date 
  • Warranties regarding validity and enforceability of the target´s material agreements with customers or suppliers, in particular if such warranties are intended to confirm that such agreements will remain in force during a certain period of time following closing and/or are not exposed to the risk of termination (forward looking statements) 
  • Warranties confirming that the target is not subject to a risk of material litigation
  • Warranties regarding due and timely settlement of taxes and social security contributions

Sellers are aiming to warrant the abovementioned events, occurrences or processes in such a way that the impact of Covid-19 would release them from liability should such warranties become untrue, inaccurate or incomplete.  

Apart from pre-signing MAC discussions, we see purchasers seeking for the following specific warranty-related issues:

  • Warranties confirming that no covenant breach will be triggered in the target’s financing agreements
  • Warranties confirming that target complied with all employment related obligations around Covid-19 (such as information, transparency and GDPR when handling employees that may have contracted the virus)
  • Prolongation of the warranty period for certain warranties (in particular operational warranties) by the period during which, due to Covid-19, the purchaser is unable to take over the target’s operational management on or immediately after the closing date (e.g. due to limitations of entry on the territory of the target’s registered seat).

Obviously, transactional documents might include other clauses such as a MAC clause relating directly to Covid-19 and related rights to rescind between signing and closing.

Either way, to avoid transactions being put on hold or aborted, parties and their counsel need to take into account the current situation and try to agree on reasonable compromises.