Updated: Jul 29, 2020

[Authored by Noor, 3rd year B.B.A. LL.B. (Hons.) student at Vivekananda Institute of Professional Studies, New Delhi.]


The M&A world has endured and recovered from a number of past economic crises and Covid-19 will be no different. The Corona virus crisis is having and will continue to have a material global impact. Attempts across the world to restrict it have led to major industry failures and economic turmoil, hundreds of thousands of companies have substantially shut down or reduced their operations, millions of employees have been laid off or furloughed, consumer demand has been drastically low, supply chains have been disrupted and demand for oil and other energy sources has soared. It has brought up many new concerns for parties involved in proposed or pending M&A transactions and for public companies to assess their vulnerability to unsolicited proposals. Since the end of March 2020 global mergers and acquisitions have reached a near standstill as a result of the crisis. Given the economic conditions and impact of the crisis on various businesses, the acquirers would most likely conduct substantial additional due diligence to determine the effect of the Corona virus crisis on the target company.

Before committing to the transaction, all parties may want to ensure that they are properly mindful of the commitments they assume, the existence and scope of the target company's contingent liability, problematic contracts, litigation risks, issues of intellectual property and more.

The jurisprudence of due diligence is strongly related with the concept of Notice.[1] Due Diligence is an obligation to take care. There is neither a positive statutory duty on the part of the buyer to exercise due diligence nor a criminal liability for a breakdown to exercise due diligence. [2]


The due diligence method is prone to undergo a transformation- depending less on actual meetings and site visits and increasingly on virtual data rooms and relying on, inter alia, the implications of the inability of the plan to satisfy its commitments under key contracts (including indemnities[3], take-or-pay, force majeure[4] and termination rights[5]), the willingness to pay off its debts and the possibility of insolvency, employee welfare and medical liabilities(including availability of insurance), compliance with the governments’ directives relating to Covid-19 and compliance with Data Protection Laws (as any information collected by companies regarding the medical condition of their employees would be ‘Sensitive Personal Data’[6]).

The pandemic has also, from a realistic point of view, modified the way due diligence needs to be performed. If the parties decide to continue with a deal, due diligence may influence the negotiation of the final merger agreement because the parties seek to identify, restrict and change the division of risk between the parties.

New due diligence issues have emerged as a consequence of the pandemic, the way due diligence is executed, the affordability, prices and other aspects of deal funding, and the period it would take to secure required regulatory and other third-party approvals for the deals. In terms of diligence, parties will want to find out as much as they can about the impact of the pandemic on the target’s operations, on the employees, on suppliers to the business, on key customers.


In the coming future, the parties might consider the following matters to be in their due diligence process-

1. Due diligence often requires close team coordination and effective allocation of duties to insure that all fields of inquiry are covered without causing inefficiencies. But what tactics will the buyer follow in an environment where direct interaction is strictly prohibited to get to know the seller's management and main employees? The due diligence process is expected to experience a transition and be less reliant on physical meetings and site visits and more based on virtual data rooms.

2. The implications of COVID-19 provide a premise for non-performance or termination and make it harder for key counterparties to get consents. In the current operating climate, negotiating conditions and take-or-pay provisions may no longer make sense, and key contracts may include obligations that the target company or its counterparties are possibly unwilling to satisfy, increasing the possibility of failure or default, given that, on the chance of getting information with ordinary diligence, contracts are not vitiated for the question of consent.[7]

3. Buyers must consider, in detail, the impact of the pandemic on a target’s operations. It has been widely known that some sectors are especially susceptible to the crisis, such as travel and hospitality. Yet many companies might have more complex organizational characteristics such as supply chains, consumer bases and main facilities in areas or markets that have been adversely impacted, that subject them to heightened risk. Organizations continuing or resuming activities could be exposed to hindsight scrutiny as to whether they ignored existing stay-at-home directives in place at the period and if they developed adequate health and safety policies for their workers, including requiring employees to return to work at a suitable time or in a suitable manner.

4. In light of the danger posed by the pandemic, does the seller comply with the health and safety laws[8]with respect to his workplaces and employees? IT systems and health and safety policies for employees have been put under increased pressure and may have recently changed for many firms as a result of the pandemic and buyers will have to consider what precautionary measures are adequate and appropriate.

5. Supply chain vulnerability is another field that requires additional due diligence, particularly during a pandemic due to its potential repercussions on product supply, sales and operations. Buyers will want to understand if, for example, any of the suppliers to the target company have declared force majeure under existing material contracts. If so, purchasers will determine, as part of the diligence process, how the target business may acquire alternate sources of supply; the costs associated with such alternative sources; and to what degree the suppliers of the target company would satisfy existing requirements.

In addition, the new due diligence “checklists” must include critical questions- what is the cash position of the seller? Does it have ample liquidity to fund its near-term obligations? How has the Corona virus impacted the seller’s workforce? Does the seller have enough employees and third-party contractors to carry on its business successfully? Pandemic-related labor and employment matters- Has the seller adhered to the central and state laws in connection with furloughs and layoffs? Will there be any possible law suits? Is there enough business continuity plans and crisis management practices?


In conclusion, the parties involved in a transaction of merger or acquisition should carefully evaluate all of their initial assumptions venturing into the transaction. If parties do want to continue with a deal, they may need to consider adjustments to the whole due diligence process beginning from the very specifications or fundamentals of the transactions up to the mechanism by which they must be rendered. Being less dependent on physical meet ups and more centered on virtual platforms is the future of due diligence process.

[1] Section 3 of the Transfer of Property Act, 1882. [2] Section 24 of The Securities Contracts (Regulation) Act, 1956. [3] Section 124 of the Indian contract Act 1872. [4] Id., Section 32. [5] Id., Section 15, 16, 17, 18, 20, 56. [6] The Personal Data Protection Bill, 2019. [7] Id., Section 19. [8] The Factories Act (1948) and The Mines Act (1952).

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