DealLawyers.com Blog

This recent memo from Hunton Andrews Kurth’s Steve Haas discusses the lessons learned from the last year’s worth of pandemic-related M&A litigation.  Steve says there are two broad categories of lessons to be learned from these lawsuits. The first category deals with the specific allocation of pandemic-related risks in purchase agreements, such as whether the effects of pandemics are excluded from the MAE definition and the extent to which the target can take actions between signing & closing without violating interim operating covenants.

Steve suggests that these lessons will become less important as the pandemic fades, but that a second category of lessons – those that arise from pandemic-era judicial interpretations of deal terms in use prior to the pandemic – will have a more lasting impact.  This excerpt says that these lessons include:

– reaffirming the high threshold necessary to show an MAE has occurred under Delaware law;

– whether parties want to be more specific in referencing the peer group for determining whether a target has been disproportionately impacted by external changes or events relative to its peers;

– negotiating ordinary course covenants, including whether the obligation to operate in the ordinary course is absolute, qualified by an “efforts” standard, or subject to other exceptions; whether “ordinary course” is based only on the target’s prior performance or can also be based on what similarly situated companies do; and the extent to which a buyer is entitled to withhold its consent from the target’s request to deviate from its covenants; and

– the possibility that sellers may be able to obtain specific performance against private equity buyers even when the parties have used the typical financial sponsor construct in which specific performance is conditioned on the funding of the debt financing.

– John Jenkins