The Covid-19 pandemic has added several additional layers of complexity to the due diligence process. This Latham memo identifies some of the issues buyers should consider when undertaking legal due diligence for an acquisition in the era of Covid-19, and highlights for sellers some of the types of due diligence questions they should expect. Here’s an excerpt on diligence issues associated with government assistance programs:
Buyers should determine whether the target has applied for or obtained any financial aid or other assistance or relief under the array of federal, state, and local programs adopted in response to COVID-19, such as the CARES Act and similar non-US programs. If the target has done so, buyers should ensure that the target has complied with the requirements of the applicable program and implemented controls and procedures to maintain ongoing compliance.
As with health, safety, and other laws, orders, and guidelines enacted or issued in response to COVID-19, buyers should continue to monitor developments under these programs and understand the target’s obligations and other implications arising from any relief it may have obtained, as well as any opportunities for the target to obtain additional relief, either before or after the closing of the transaction. Buyers should also consult with their tax advisors in light of the complexity and evolving nature of certain tax law changes implemented in response to COVID-19 and their potential impact on the target.
The memo covers a wide range of issues directly and indirectly impacted by the pandemic. These include compliance with laws and regulations related to Covid-19, employee health and safety, pension plan liabilities, supply chain management, contract performance and force majeure issues, compliance with debt obligations, securities law compliance and regulatory communications.
– John Jenkins